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Wall St climbs as bank contagion fears ebb, focus on Fed meet

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Investors on Tuesday (March 21) took some heart from the rescue of troubled lender Credit Suisse by its Swiss rival UBS, though concerns lingered about the risk of shockwaves further damaging credit markets and smaller U.S. banks. Julian Satterthwaite reports.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 20, 2023. REUTERS/Brendan McDermid

Wall Street’s main indexes climbed on Tuesday after the rescue of Credit Suisse calmed nerves about a bigger banking crisis, while investors awaited the outcome of the Federal Reserve’s monetary policy meet.

Traders largely expect a 25-basis-point rate hike from the Fed on Wednesday, half the 50-bps increase expected before the banking crisis triggered by Silicon Valley Bank and Signature Bank’s (SBNY.O) collapse.

The state-backed takeover of Credit Suisse by UBS (UBS.N) and steps taken by central banks to boost liquidity have eased contagion fears for the broader banking sector, but analysts believe the crisis hasn’t been fully averted.

While the U.S. banking system is stabilizing after strong actions from regulators, further steps to protect bank depositors may be needed if smaller institutions suffer deposit runs that threaten more contagion, U.S. Treasury Secretary Janet Yellen told bankers on Tuesday.

“Investors are hoping for the best of both worlds. (They) are optimistic that the banking situation is being stabilized, but they’re also optimistic that the Fed will have a little bit more dovish tone because of that banking situation,” said Brian Klimke, investment director at Cetera Investment Management LLC

“This stabilization in the banking space will give them (the Fed) room to hike a little bit more but we do expect that their tone might be a little less hawkish.”

Boosting the S&P 500 (.SPX), major U.S. banks JPMorgan Chase (JPM.N), Citigroup (C.N) and Bank of America (BAC.N) jumped between 3% and 4%.

Beaten-down regional lenders also climbed, with First Republic Bank (FRC.N) rebounding nearly 40% after hitting a record low on Monday.

JPMorgan CEO Jamie Dimon is leading talks with other big banks on fresh steps to stabilise First Republic with a possible investment into the lender, the Wall Street Journal reported on Monday.

Peers PacWest Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N) rose 15.5% and 16.1% respectively.

Among major movers, Meta Platforms Inc (META.O) gained 0.4% after Morgan Stanley upgraded the stock to “overweight” from “equal weight”, while Tesla Inc (TSLA.O) jumped 5.9% on expectations of a strong quarter in China following the latest retail sales data.

At 11:35 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 241.12 points, or 0.75%, at 32,485.70, the S&P 500 (.SPX) was up 33.73 points, or 0.85%, at 3,985.30, and the Nasdaq Composite (.IXIC) was up 97.58 points, or 0.84%, at 11,773.12.

Seven of the 11 major S&P 500 sectors were in the green.

The KBW regional banking index (.KRX) rose 4.4% and was headed for its sharpest daily percentage gain since October while the S&P 500 banking index (.SPXBK) was on course for its best day since November.

The indexes have fallen 16.7% and 17.8%, respectively, so far in March.

The CBOE volatility index (.VIX), known as Wall Street’s fear gauge, fell to its lowest since March 10.

Meanwhile, data showed U.S. existing home sales increased for the first time in a year in February.

Advancing issues outnumbered decliners by a 3.93-to-1 ratio on the NYSE and by a 3.00-to-1 ratio on the Nasdaq.

The S&P index recorded five new 52-week highs and no new low, while the Nasdaq recorded 32 new highs and 68 new lows.

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