4:14pm: Banking stocks take big hits
The Dow closed Monday down 91 points, 0.3%, at 31,819, while the Nasdaq Composite added 50 points, 0.5%, to 11,189 and the S&P 500 lost 6 points, 0.2%, to 3,856. The small-cap Russell 2000 index declined 24 points, 1.4%, to 1,749.
The benchmarks ended the day a bit better than they began after peaking around midday, as the Silicon Valley Bank crisis dominated investor sentiment all session long. President Biden assured SVB depositors that their money would be protected, and some speculated the bank's failure would mean an end to interest rate hikes when the Federal Reserve meets next week.
That optimism didn't stop the Dow from losing for the fifth day in a row and the Cboe Volatility index from reaching its highest level since late 2022.
Banking companies, particularly regionals, were among the hardest hit. First Republic Bank saw its shares fall more than 60%, and Western Alliance Bancorporation stock dropped nearly 50%.
Bank of America and Wells Fargo closed 5.6% and 7.1% lower, respectively.
12:05pm: Stocks rally as investors bet SVB crisis will halt rate hikes
US stocks were higher in noon trading, in a see-saw trading session, after President Biden assured Silicon Valley Bank (SVB) depositors their money would be protected while the crisis could lead to a pause in Federal Reserve interest rate increases.
At midday, the Dow gained 299 points to 32,208 while the S&P 500 added 40 points at 3,901 and the tech-heavy Nasdaq rose 140 points to 11,279.
“There’s a lot of moving parts, so that’s why you see volatility,” Globalt Investments senior portfolio manager Keith Buchanan said.
“There are a lot of different scenarios in which this can develop, but it all boils down to: How widespread is this risk of contagion?,” he added.
Notable movers included First Republic Bank, which plummeted more than 60% on fears the SVB crisis will spread to other regional banks.
9:35am: Is First Republic Bank up next?
US stocks turned red at the open as the collapse of Silicon Valley Bank (SVB) sent shockwaves across financial markets.
Just after the opening bell, the Dow Jones Industrial Average had shed 232 points or 0.7% at 31,678 points, the S&P 500 was down 37 points or 1% at 3,825 points, and the Nasdaq Composite had lost 90 points or 0.8% at 11,048 points.
“While the Fed has stepped in to effectively backstop SVB clients, meaning taxpayers won’t suffer any losses, broader fears for the US banking sector are weighing heavily on investor sentiment,” TickMill Group market analyst James Harte said.
Harte noted that, additionally, the State Chartering Authority announced that it was closing Signature Bank to avoid the bank suffering a similar collapse to that of SVB due to liquidity strains there.
“Fears of broader contagion linked to the collapse of SVB and the closure of Signature Bank have seen stock markets coming under heavy selling pressure,” he said.
“With financial sector liquidity concerns likely to remain a key issue going forward, equities look vulnerable to further losses near-term.”
Shares of First Republic Bank had fallen more than 65% at the open with investors betting on it being the next bank to fall.
The bank announced over the weekend that it had secured additional funding from JP Morgan to shore up its liquidity levels.
“However, the news has failed to convince traders and shares are currently down,” Harte noted, with jitters regarding a potential run building.
Regional banks Western Alliance Bancorporation and PacWest Bancorp had also shed 75% and 46% respectively at the open.
7:30am: SVB collapse alters rate outlook
Wall Street is expected to open higher after US regulators stepped in to protect depositors at collapsed Silicon Valley Bank (SVB) and Signature Bank, with the demise of the two tech-focused banks making it less likely that the Federal Reserve will pursue a hawkish agenda when it decides on its next interest rate hike later this month.
Futures for the Dow Jones Industrial Average (DJIA) rose 0.1% in Monday pre-market trading, while those for the broader S&P 500 gained 0.4%, and contracts for the Nasdaq-100 jumped 1%.
US stocks fell sharply on Friday following the collapse of SVB, which was rescued by the Federal Deposit Insurance Corporation (FDIC), with a new bank set up to hold and guarantee deposits up to US$250,000 held at the bank.
The DJIA closed down 1.1% at 31, 910, the Nasdaq Composite lost 1.8% to 11,139, and the S&P 500 fell 1.5% to 3,862. The small-cap Russell 200 index declined 3.2% to 1,769.
On Sunday, crypto bank Signature was also closed down due to what was said by the regulator to be a risk of systemic bank failure. All Signature's depositors will be "made whole", said the FDIC, adding that as with the resolution of Silicon Valley Bank, no losses will be borne by the US taxpayer.
“The move by US regulators is seen as an urgent and significant defence of the banking system alleviating some of the concerns last seen during the GFC (global financial crisis),” commented TickMill Group market analyst Patrick Munnelly.
“With a distinct lack of tier one data on the docket for both the European and US sessions, investor focus will shift to tomorrow's US CPI data,” he added. “However, this release may have lost some of its significance given the banking system stress witnessed over the weekend, as the Fed’s focus on fighting inflation has shifted to firefighting systemic stress.”
“Goldman Sachs now believes that the Fed’s hands are tied by the banking system stress as such they do not see the FOMC (Federal Open Market Committee) raising rates at the March 22nd meeting this has led to an uptick in bonds overnight weighing on yields with the 2-year US yields dropping back below 4.5%,” he said.
Munnelly noted that US core inflation data, to be released later this week, is expected to show a ‘modest retreat’ to 5.5% in February, down from January’s year-over-year gain of 5.6%.