Bank stocks extended their recent decline as sharply higher interest rates intensified concerns about inflation and weakened financial-sector prospects. The KBW Nasdaq Bank Index (^BKX), a gauge of the nation’s large banks, dropped as much as 2.4% on Thursday before paring losses and trading 0.7% below Wednesday’s close. It has returned to its late-May level and is down more than 13% from its mid-August peak. Citigroup fell 1.9%, PNC declined 1.8% and Bank of America lost 1.4%. Financial stocks had their worst monthly performance relative to the S&P 500 since 1990, according to Truist Securities, while analyst Brian Foran said their relative performance resembles the Dot Com era. Major stock indexes also slipped after fresh manufacturing readings renewed inflation concerns, while Treasury yields eased following the worst quarter in decades for U.S. government bonds. Higher borrowing costs can reduce demand for loans, slow mergers and acquisitions (M&A), and weaken trading activity. Global M&A deal value fell to about $1.23 trillion in the third quarter from a record $1.8 trillion in the second quarter, according to Mergermarket. Oura postponed its planned initial public offering (IPO), while Holtec Nuclear and Bamboo Insurance also paused planned debuts. Jefferies Financial Group’s earnings added to evidence of softer fixed-income trading in the third quarter, and investors are assessing whether artificial-intelligence advances, including Meta’s Muse agent, could further pressure bank profit margins.