Stocks wobble as smaller banks plunge on fears of contagion

Banking
By Editor_1
The exterior of the New York Stock Exchange in lower Manhattan on June 13, 2022. The stocks of US regional banks plummeted on Monday (March 13), as investors reassessed how much such lenders were worth following the sudden collapse of Signature Bank and Silicon Valley Bank 0 Hiroko Masuike/The New York Times
By Joe Rennison

NEW YORK – The stocks of US regional banks plummeted Monday (13), as investors reassessed how much such lenders were worth following the sudden collapse of Signature Bank and Silicon Valley Bank.

The volatile conditions led to trading in roughly a dozen banks being halted after triggering so-called circuit breakers, which are meant in part to prevent runaway crashes.

Arizona-based Western Alliance stood out as the worst mover on the day, down 80% in early trading. First Republic Bank tumbled 75%, Utah-based Zions Bancorp fell around 20%, Comerica tumbled about 30%, East West Bancorp fell 30% and Regions Financial, headquartered in Birmingham, Alabama, was down around 10%.

Shares of bigger banks were less affected, but not immune. Citigroup and Wells Fargo fell more than 4%, Bank of America fell more than 3%, and JPMorgan Chase dipped by around 1%. The KBW bank index, which tracks the performance of 24 major banks, fell 10%, adding to sharp losses last week that erased nearly $200 billion from the aggregate value of the banks in the index.

The broader S&P 500 stock index shrugged off the worst of the pain in the banking sector, which is one of the smaller sectors of the index and therefore has less impact on the overall market. The S&P 500 rose slightly by late morning.

The crisis in the banking sector also prompted a swift re-evaluation of the number of times the Federal Reserve will raise interest rates, as fears over the resilience of the economy are expected to stay the central bank’s hand.

That led to US government debt markets experiencing their biggest moves since Black Monday in 1987, which was one of the most severe market crashes on record. The two-year Treasury yield, which is sensitive to changes in interest rate expectations, fell 0.54 percentage points in morning trading, to just above 4%, its biggest one-day drop since October 1987.

That might not sound like a lot, but the yield normally moves in tiny fractions of a percentage point each day, and only topped 5% last week for the first time since mid-2007. The move Monday recalled the biggest moves around the fall of Lehman Brothers and the tech crash of the early 2000s.

Having ramped up bets that the Fed would raise interest rates by as much as a full percentage point in the coming months, investors are now doubting whether the Fed would be that aggressive.

The Fed has used higher rates to slow the economy and lower inflation, which is also at the root of the pain being felt in the banking sector. Goldman Sachs said it believes the Fed would no longer raise interest rates at its meeting next week.

Investors’ expectations for where the Fed will set interest rates by June have fallen from 5.5% last week to 4.7% on Monday. In line with the slump in interest rates, the dollar fell 0.9% against a basket of currencies of America’s major trading partners.

-New York Times

 

 

Editor_1
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