U.S. stock indexes rose 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 (SVB) 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 it 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 SVB’s depositors will have access to their funds on Monday.
“The bank run was precipitated by the Fed’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.
Shares of SVB’s peer Signature Bank (SBNY.O), which was also shut down by regulators, were halted for trading.
Meanwhile, President Joe Biden vowed to do whatever was needed to address the threat to the banking system after the collapse of the two banks.
First Republic Bank (FRC.N) dropped 63.7% as news of fresh financing failed to reassure investors, while Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O) fell 60.2% and 30.4%, respectively. Trading in the stocks was halted several times due to volatility.
Weighing on the S&P 500, Charles Schwab (SCHW.N) fell 10% on resuming trade after the financial services company reported a 28% decline in average margin balances and a 4% fall in total client assets for February.
Shares of big U.S. banks, including JPMorgan Chase & Co (JPM.N), Citigroup (C.N), and Wells Fargo (WFC.N) fell between 1% and 6.3%.
The KBW regional banking index declined 4.8%, while the S&P 500 banks index (.SPXBK) dropped 6.0%.
Defensive sectors such as healthcare (.SPXHC), real estate (.SPLRCR), consumer staples (.SPLRCS), and utilities (.SPLRCU) rose between 1.6% and 3%.
“The market is now expecting that the Fed is likely to not raise rates this month and so they may enter a pause period,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
The benchmark S&P 500 (.SPX) briefly erased all year-to-date losses earlier in the session. It is now up 1.3% for the year so far.
The CBOE Volatility Index (.VIX), known as Wall Street’s fear gauge, rose 6.5%.
Traders are now largely pricing in a 25 basis point rate hike from the Fed in March, with bets that the central bank will hold interest rates at their current level standing at 22%.
The projections of a terminal rate have receded to 4.9% by May from around 5.5% in September earlier.
Looking ahead, investors also await crucial inflation data due on Tuesday for more clues on the Fed’s monetary tightening plans.
At 12:03 pm ET, the Dow Jones Industrial Average (.DJI) was up 184.96 points, or 0.58%, at 32,094.60, the S&P 500 (.SPX) was up 24.37 points, or 0.63%, at 3,885.96, and the Nasdaq Composite (.IXIC) was up 138.79 points, or 1.25%, at 11,277.68.
Among individual stocks, Pfizer Inc (PFE.N) was up 2.4% after the drugmaker said it would buy Seagen Inc (SGEN.O) for nearly $43 billion.
Declining issues outnumbered advancers by a 1.46-to-1 ratio on the NYSE and by a 1.24-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week highs and 48 new lows, while the Nasdaq recorded 24 new highs and 452 new lows.