Wall Street closed lower Thursday, with signs of weakness in regional banks spooking investors already on edge over U.S.-China trade tensions.

Shares of Zions Bancorporation tumbled after the regional bank disclosed an unexpected loss on two loans in its California division, adding to growing investor unease about hidden credit stress as lenders navigate economic uncertainty with interest rates still relatively high.

Also fueling worries about regional banks, Western Alliance slumped after it said it initiated a fraud lawsuit against one of its borrowers.

With the S&P 500 recently at record highs, investors were also watching for developments between Washington and Beijing after their trade war escalated last week.

U.S. President Donald Trump has threatened 100% tariffs on China starting November 1, as well as other new trade measures against the world's second-largest economy following Chinese curbs on exports of rare earth minerals.

"With the added uncertainty of U.S. and China trade and increased rhetoric and what that could mean for the economy and for the markets, I think that's adding to market instability," said Tom Hainlin, an investment strategist at U.S. Bank Wealth Management in Minneapolis.

TSMC, the world's largest manufacturer of advanced semiconductors, gave a bullish outlook for spending on artificial intelligence.

Still, heavyweight AI-related stocks Palantir, Tesla and Meta Platforms lost ground.

Salesforce jumped after the business software seller forecast revenue of more than $60 billion for 2030, above Wall Street estimates.

Optimism about AI and expectations of U.S. interest rate cuts have lifted Wall Street to record highs this year. The S&P 500 has gained 12% so far in 2025, and it is valued at an elevated 23 times expected earnings, a five-year high, according to LSEG.

Robust earnings from major U.S. banks this week offered fresh signs of economic resilience at a time when official macroeconomic reports remain delayed due to an ongoing government shutdown.

Analysts on average see S&P 500 aggregate earnings up 9.2% in the third quarter, versus expectations of an 8.8% increase two weeks ago, according to LSEG I/B/E/S.

The S&P 500 insurance index dropped after industry bellwether Travelers Companies posted quarterly revenue below estimates, with its stock falling sharply.

Insurer Marsh & McLennan reported flat operating margins and slowing growth in its risk and insurance business, and its stock also fell.

According to preliminary data, the S&P 500 lost 42.10 points, or 0.63%, to end at 6,628.96 points, while the Nasdaq Composite lost 105.77 points, or 0.47%, to 22,564.31. The Dow Jones Industrial Average fell 298.48 points, or 0.65%, to 45,954.83.

Data showed the Philadelphia Fed Business Index for October declined 12.8 points, compared with a rise of 8.5 estimated by the economists polled by Reuters.

Fed Governor Christopher Waller said he supported an additional interest rate cut in October due to mixed readings on the state of the job market.

Hewlett Packard Enterprise slumped after the technology company forecast annual profit and revenue below Wall Street expectations.

J.B. Hunt shares jumped after the trucking firm reported third-quarter profits.