Wall Street ends sharply lower on bank contagion fears
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[March 18, 2023] By
Stephen Culp
NEW YORK (Reuters) - Wall Street closed lower on Friday, marking the end
of a tumultuous week dominated by an unfolding crisis in the banking
sector and the gathering storm clouds of possible recession.
All three indexes ended the session deep in negative territory, with
financial stocks down the most among the major sectors of the S&P 500.
For the week, while the benchmark S&P 500 ended higher than last
Friday's close, the Nasdaq and the Dow posted weekly declines.
SVB Financial Group announced it would seek Chapter 11 bankruptcy
protection, the latest development in an ongoing drama that began last
week with the collapse of Silicon Valley Bank and Signature Bank, which
sparked fears of contagion throughout the global banking system.
"(The sell-off) is a bit of an overreaction," said Oliver Pursche,
senior vice president at Wealthspire Advisors in New York. "However,
there is validity to some of the concerns regarding overall liquidity
and a potential liquidity crunch."
Those concerns have spread to Europe, as Credit Suisse shares stumbled
over liquidity worries, prompting policymakers to scramble to reassure
markets.
"This goes a lot further than just a run on SVB or First Republic, it
goes to the real impact these interest rate hikes are having on capital
and balance sheets," Pursche added. "And you're seeing it impact large
institutions like Credit Suisse, and that’s got people rattled."
Over the last two weeks, the S&P Banking index and the KBW Regional
Banking index plunged by 4.6% and 5.4%, respectively, their largest
two-week drops since March 2020.
First Republic Bank plunged 32.8% after the bank announced it was
suspending its dividend, reversing Thursday's surge which was sparked by
an unprecedented $30 billion rescue package from large financial
institutions
Among First Republic's peers, PacWest Bancorp fell 19.0% while Western
Alliance slid 15.1%.
U.S.-traded shares of Credit Suisse also closed sharply lower, down
6.9%.
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Traders work on the trading floor at the
New York Stock Exchange (NYSE) in New York City, U.S., March 17,
2023. REUTERS/Andrew Kelly
Investors now turn their gaze to the Federal Reserve's two-day
monetary policy meeting next week.
In view of recent developments in the banking sector and data
suggesting a softening economy, investors have adjusted their
expectations regarding the size and duration of the Fed's
restrictive interest rate hikes.
"This mini banking crisis has increased the chance of recession and
accelerated the slowdown timeline for the economy," Pursche said.
"It's natural that the Fed should re-examine its course of action,
but it's still very clear that while inflation is slowing it's still
very much a concern and needs to be brought under control."
At last glance, financial markets have priced in a 60.5% likelihood
that the central bank will raise its key target rate by 25 basis
points, and a 39.5% probability that it will let the current rate
stand, according to CME's FedWatch tool.
The Dow Jones Industrial Average fell 384.57 points, or 1.19%, to
31,861.98, the S&P 500 lost 43.64 points, or 1.10%, to 3,916.64 and
the Nasdaq Composite dropped 86.76 points, or 0.74%, to 11,630.51.
All 11 major sectors of the S&P 500 ended the session in negative
territory.
On the upside, FedEx Corp jumped 8.0% after hiking its current
fiscal year forecast.
Declining issues outnumbered advancing ones on the NYSE by a
4.07-to-1 ratio; on Nasdaq, a 2.94-to-1 ratio favored decliners.
The S&P 500 posted 5 new 52-week highs and 20 new lows; the Nasdaq
Composite recorded 29 new highs and 320 new lows.
Volume on U.S. exchanges was 19.41 billion shares, compared with the
12.49 billion average over the last 20 trading days.
(Reporting by Stephen Culp in New York; Additional reporting by
Shubham Batra and Amruta Khandekar in Bengaluru; Editing by Matthew
Lewis)
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