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Beset by worries
Major U.S. indexes tumbled, weighed down by losses in financial stocks and worries over China's faltering economy. Asia-Pacific markets followed Wall Street and fell Wednesday. Most regional indexes lost at least 1%. A silver lining: Japanese business' sentiment climbed in July, alongside the country's stronger-than-expected economic growth.

Potential banking downgrade
Fitch Ratings warned it may downgrade the U.S. banking industry's credit rating from AA- to A+. Since individual banks cannot be rated higher than the industry, major banks like JPMorgan Chase and Bank of America would be cut to an A+ rating — with a trickle-down effect for smaller banks — if the downgrades happens. Fitch's warning comes as Moody's downgraded 10 banks last week.

Higher risk of corporate defaults
There's a higher chance corporate debt in emerging markets might default, according to JPMorgan. The bank raised its forecast for high-yield defaults in Asia from 4.1% to 10% — but that figure drops to just 1% if China property is excluded. That's a sign of how severe the contagion risk is if Country Garden, the beleaguered Chinese property developer, defaults.

U.S. consumer strong as ever
U.S. consumer spending in July remained healthy, according to data from the Commerce Department. Seasonally adjusted retail sales rose 0.7% for the month; economists were expecting 0.4%. Excluding autos, sales rose 1% against a 0.4% forecast. Both figures were the best monthly gains since January, reinforcing sentiment that the consumer can continue supporting economic growth.

[PRO] Stocks are still 'overvalued'
Despite the sell-off in stocks the last two weeks, U.S. markets have rallied so much this year that stocks are still "overvalued and overextended," according to Morningstar's chief U.S. market strategist. It's a good time to sell these six stocks to lock in profits — and buy five cheap ones, he said.

Financial stocks had a bad day.

After Fitch warned that it might downgrade the banking industry's credit rating, shares of big U.S. banks fell. Bank of America lost 3.2%, JPMorgan declined 2.55% and Wells Fargo slid 2.31%.

Regional banks weren't spared the slaughter, either. The SPDR S&P Regional Banking ETF fell 3.33% after Minneapolis Federal Reserve President Neel Kashkari spoke in favor of "significantly further" capital requirements for banks with more than $100 billion in assets. Kashkari also emphasized that if inflation rebounds, rates might have to go higher and "pressures [in regional banks] could flare up again."

But not everyone's worried about Fitch's warning. "The U.S. bank system is overall sound," said Eric Diton, president and managing director at The Wealth Alliance.

"All Fitch was saying was: 'If we did downgrade the sector again, that would lead us to have to downgrade a lot of the individual banks,'" Diton said. "Maybe they will, maybe they won't."

Banking doldrums aside, there were two bright spots in the initial public offering arena. Shares of VinFast, a Vietnamese electric vehicle company, surged from $10 per share to $22 in its debut on the Nasdaq; prices continued rising throughout the day to close at $37.

Meanwhile, Cava shares jumped 9.44% in extended trading after its first earnings report since its IPO in June. Taken together, they suggest that the IPO market is returning to health.

Still, major indexes couldn't shrug off worries over banks and China. The S&P 500 slipped 1.16%, ending the day below its 50-day moving average for the first time since March — possibly heralding the start of a continued slide. The Dow Jones Industrial Average lost 1.02%, breaking its three-day winning streak. The Nasdaq Composite fell 1.14%.

If indexes continue sliding, that'd be their third consecutive losing week. Investors are hoping it's a brief summer spell, a moment of correction that will end as the weather turns.