March 30, 2023

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Wall Street closed sharply lower on fears of bank contagion

  • First Republic Bank is faltering due to the suspension of dividends
  • SVB Financial is seeking bankruptcy protection
  • FedEx Jumps As Full-Year Earnings Expectations Increase
  • Indices down: Dow 1.19%, S&P 1.10%, Nasdaq 0.74%

NEW YORK (Reuters) – Wall Street closed lower on Friday, marking the end of a turbulent week dominated by an unfolding crisis in the banking sector and gathering storm clouds from a potential recession.

The three indices ended the session deep in negative territory, with financial stocks (.SPNY) falling the most among the major sectors of the S&P 500.

Over the course of the week, while the benchmark S&P 500 finished higher than last Friday’s close, the Nasdaq and Dow posted weekly declines.

SVB Financial Group (SIVB.O) has announced that it will 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 (SBNY.O), sparking fears of contagion in the country. the whole world. global banking system.

“(The sale is) somewhat overstated,” said Oliver Burch, senior vice president at Wealthspear Advisors in New York. “However, there is validity to some of the overall liquidity concerns and a potential liquidity crunch.”

Those concerns spilled over into Europe, where shares in Credit Suisse (CSGN.S) faltered on liquidity concerns, prompting policymakers to scramble to reassure markets.

“This goes way beyond just running into SVB or First Republic, it goes into the real impact these rate increases are having on capital and the balance sheet,” Burch added. “And you see it affecting large institutions like Credit Suisse, and that has people worried.”

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Over the past two weeks, the S&P Banking Index (.SPXBK) and the KBW Regional Banking Index (.KRX) have fallen by 4.6% and 5.4%, respectively, their largest drop in two weeks since March 2020.

First Republic Bank (FRCN) fell 32.8% after the bank announced it was suspending its dividend, reversing Thursday’s rally triggered by an unprecedented $30 billion bailout package from major financial institutions.

Among First Republic peers, PacWest Bancorp (PACW.O) is down 19.0% while Western Alliance (WAL.N) is down 15.1%.

Shares traded in the US at Credit Suisse also closed sharply lower, down 6.9%.

Investors are now turning their sights to the Federal Reserve’s two-day monetary policy meeting next week.

In light of recent developments in the banking sector and data pointing to a weak economy, investors have revised their expectations regarding the size and duration of the Fed’s rate hike.

“This micro-banking crisis has increased the chances of a recession and accelerated the timeline for the economic slowdown,” Burch said. “Naturally the Fed will re-examine its course of action, but it is still very clear that while inflation is slowing, it is still a huge concern and needs to be controlled.”

At last glance, financial markets have set a 60.5% chance that the central bank will raise its key target rate by 25 basis points, and a 39.5% chance that it will leave the current rate flat, according to CME’s FedWatch tool.

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The Dow Jones Industrial Average fell 384.57 points, or 1.19%, to 31,861.98 points, the Standard & Poor’s 500 lost 43.64 points, or 1.10%, to 3,916.64 points, and the Nasdaq Composite Index fell 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 (FDX.N) jumped 8.0% after raising its forecast for the current fiscal year.

Low issues outnumbered high issues on the NYSE by a ratio of 4.07 to 1; On the Nasdaq, the ratio was 2.94 to 1 in favor of declining stocks.

S&P 500 records 5 new highs in 52 weeks and 20 new lows; The Nasdaq Index posted 29 new highs and 320 new lows.

Trading volume on US stock exchanges reached 19.41 billion shares, compared to an average of 12.49 billion over the last 20 trading days.

Additional 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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