U.S. market indexes declined on Monday as expectations increased for a Federal Reserve interest rate hike pause in March and as fears of a contagion increased following the collapse of a Silicon Valley bank and the suspension of trading in numerous banks.
Concerns about threats to other banks from the Federal Reserve’s strongest rate hike cycle since the early 1980s were raised by the unexpected shutdown of SVB Financial on Friday following a failed capital raise.
Authorities intervened over the weekend to regain investor trust in the banking sector and announced that depositors at Silicon Valley Bank will have access to their money on Monday.
“Your first thinking when such a large, swift step is taken is catastrophe avoided. Therefore, your next question is: How serious was that crisis and how serious were the risks involved in taking this action?” stated Cherry Lane Investments partner Rick Meckler.
The Fed is attempting to prevent further harm to the financial industry, thus the only thing I have heard that is good for the markets is the idea that it will halt the rise in interest rates.
According to President Joseph Biden, People should feel confident that the banking system is secure as a result of the administration’s quick efforts to assist depositors in two U.S. institutions.
Shares of Signature Bank, a rival of SVB that was shut down by regulators on Sunday, were not traded.
First Republic Bank plunged 65.1% as investors were unconvinced by news of new financing, and Western Alliance Bancorp, PacWest Bancorp, and Charles Schwab also experienced declines of 75.9%, 41.0%, and 19%, respectively. Due to volatility, stock trading was stopped many times.
After the financial services company disclosed a 28% decline in average margin balances from a year earlier in February, Charles Schwab’s stock dropped 19% when trading resumed.
Large U.S. banks’ stock prices declined by 2.8% to 6.3%, including JPMorgan Chase & Co., Morgan Stanley, and Bank of America.
Although the S&P 500 banks index lost 7.7%, the KBW regional banking index sank 11.2%.
The fall of SVB damaged market mood, which had already been soured by concerns that the Fed would opt for a significant raise at its meeting next week, and the benchmark S&P 500 lost all of its year-to-date gains.
Rate cuts are now anticipated for the second half of the year, and traders currently perceive a 50% likelihood that the Fed won’t raise rates at its meeting next week.
It’s been a while since I’ve done this, but I’ve been meaning to for a while now.
For its upcoming policy meeting on March 21–22, the Fed is no longer expected to hike rates by 25 basis points, according to Goldman Sachs analysts.
For additional hints on the Fed’s monetary tightening plans, investors are waiting for critical inflation data expected on Tuesday.
The S&P 500 was down 43.09 points, or 1.12%, at 3,818.50 at 9:40 a.m. ET, the Nasdaq Composite was down 121.04 points, or 1.09%, at 11,017.85, and the Dow Jones Industrial Average was down 120.81 points, or 0.38%, at 31,788.83.
Pfizer Inc. was up 0.7% among individual stocks after the pharmaceutical company announced it will acquire Seagen Inc. for over $43 billion.
On the NYSE, declining issues outpaced advancing ones by a ratio of 5.01 to 1 and 3.39 to 1 respectively.
The Nasdaq recorded 19 new highs and 321 new lows, compared to the S&P index’s zero new 52-week highs and 44 new lows.