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Wall Street mixed as investors weigh possible rate hike pause, bank contagion risks

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A Trader works inside a post on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 7, 2023. REUTERS/Brendan McDermid

U.S. stock indexes were mixed in choppy trading on Monday as investors weighed a possible pause in interest rate hikes by the Federal Reserve in March and risks of a contagion from Silicon Valley Bank’s collapse.

The sudden shutdown of SVB Financial (SIVB.O) on Friday after a failed capital raise triggered concerns about risks to other banks from sharp rate hikes by the Fed over the last year, but has also spurred speculation about whether the central bank could slow the pace of its monetary tightening.

Regulators over the weekend stepped in to restore investor confidence in the banking system, saying Silicon Valley Bank depositors will have access to their funds on Monday.

“The bank run was precipitated by the Federal Reserve’s overly hawkish policy. The bull case is that this will finally knock some sense into them (the Fed) and they will stop raising rates,” said Jay Hatfield, founder and CEO of Infrastructure Capital Management.

“The market is anticipating that they’re going to have to cut (rates).”

President Joe Biden said that the administration’s swift actions to help depositors in two U.S. banks should give Americans confidence that the banking system is safe.

Trading in shares of SVB’s peer Signature Bank (SBNY.O), which was shut down by regulators on Sunday, was halted.

First Republic Bank (FRC.N) dropped 76.6% as news of fresh financing failed to reassure investors, while Western Alliance Bancorp (WAL.N), PacWest Bancorp (PACW.O) fell 82.5% and 53% respectively. Trading in the stocks was halted several times due to volatility.

Weighing on the S&P 500, Charles Schwab (SCHW.N), which had also been halted, fell 18.6% on trade resumption after the financial services company reported a 28% decline in average margin balances in February from a year earlier.

Shares of big U.S. banks including JPMorgan Chase & Co (JPM.N), Morgan Stanley (MS.N) and Bank of America (BAC.N) fell between 0.8% to 6%.

The KBW regional banking index fell 9.8%, while the S&P 500 banks index (.SPXBK) dropped 6.4%.

Defensive sectors including healthcare (.SPXHC), real estate (.SPLRCR), consumer staples (.SPLRCS) rose between 1% to 2.6%.

The benchmark S&P 500 (.SPX) briefly erased all year-to-date losses earlier in the session and was up 1% for the year so far.

The Cboe Volatility Index (.VIX), known as Wall Street’s fear gauge, rose 14.6%.

Traders currently see a 44% chance of no rate hike at the Fed’s meeting next week, with rate cuts priced in for the second half of the year.

The projections of a terminal rate have receded to 4.7% by May from around 5.5% in September earlier.

Investors await crucial inflation data due on Tuesday for more clues on the Fed’s monetary tightening plans.

At 10:39 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 28.10 points, or 0.09%, at 31,937.74, the S&P 500 (.SPX) was down 1.70 points, or 0.04%, at 3,859.89, and the Nasdaq Composite (.IXIC) was up 26.58 points, or 0.24%, at 11,165.47.

Among individual stocks, Pfizer Inc (PFE.N) was up 1.9% after the drugmaker said it would buy Seagen Inc (SGEN.O) for nearly $43 billion.

Declining issues outnumbered advancers by a 2.37-to-1 ratio on the NYSE and by a 1.74-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week high and 48 new lows, while the Nasdaq recorded 23 new highs and 432 new lows.

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