US Stocks Rise Monday After Bank Deal 03/20 15:34
Stocks rose on Wall Street Monday after regulators pushed together two huge
banks over the weekend and made other moves to build confidence in the
NEW YORK (AP) -- Stocks rose on Wall Street Monday after regulators pushed
together two huge banks over the weekend and made other moves to build
confidence in the struggling industry.
The S&P 500 climbed 34.93 points, or 0.9%, to 3,951.57. The Dow Jones
Industrial Average gained 382.60, or 1.2%, to 32,244.58, and the Nasdaq
composite added 45.02, or 0.4%, to 11,675.54.
Much attention has been on banks because they may be cracking under the
pressure of much higher interest rates. Swiss banking giant UBS said Sunday it
would buy its troubled rival Credit Suisse for almost $3.25 billion in a deal
quickly put together by regulators. Credit Suisse has been battling a unique
set of problems for years, but they came to a head last week as its stock price
tumbled to a record low.
A group of central banks stretching from the United States to Japan also
announced coordinated moves on Sunday meant to ease strains in the financial
system. They should allow banks more access to U.S. dollars if needed, in an
echo to a practice widely used in prior crises.
The moves don't mean the banking industry's crisis is over, but "it's taken
one of the troublesome aspects off the table," said Ryan Detrick, chief market
strategist at Carson Group.
The late Sunday announcements by regulators may be reminiscent of the
2007-08 financial crisis that wrecked the global economy, but many investors
see big differences between then and now.
"The market is trying to digest: Is this just a few bad financial companies
that have really made some bad decisions, or is the whole thing a house of
cards?" Detrick said. "We're optimistic that it's multiple banks in a bad
situation but not the entire system."
In the U.S., most of the attention has been on smaller and mid-sized banks
on fears that falling trust could push their depositors to pull their money all
at once. That's what's called a bank run, and such a move could topple them.
First Republic Bank has been at the center of investors' crosshairs in the
hunt for the industry's next victim following the second- and third-largest
U.S. bank failures in history. Its shares fell 47.1% after S&P Global Ratings
cut its credit rating for a second time since Wednesday.
S&P said it could lower the rating even further despite a group of the
biggest U.S. banks announcing last week they would deposit $30 billion in a
sign of faith in First Republic and the larger banking industry.
While that money certainly helps, "it may not solve the substantial
business, liquidity, funding, and profitability challenges that we believe the
bank is now likely facing," the credit-ratings agency said.
Stocks of other smaller- and mid-sized banks, meanwhile, were much stronger.
New York Community Bancorp jumped 31.7% after it agreed to buy much of
Signature Bank in a $2.7 billion deal, the Federal Deposit Insurance Corp. said
late Sunday. Signature Bank became the industry's third-largest failure earlier
this month after regulators seized it.
Much of the rest of the U.S. stock market also pushed higher, but how long
that lasts is a question mark. A huge decision is looming on the calendar by
the Federal Reserve.
The U.S. central bank will announce its latest move on interest rates
Wednesday. For a while, Wall Street was betting it would reaccelerate its hikes
because of how stubborn high inflation has remained.
Higher rates can undercut inflation by slowing the economy, but they raise
the risk of a recession later on. They also hurt prices for stocks and other
investments. That was one of the factors hurting Silicon Valley Bank, which
earlier this month became the second-biggest U.S. bank failure in history.
Bonds owned by it and other banks have seen their prices fall as interest rates
The Fed has already pulled its key overnight rate to a range of 4.50% to
4.75%, up from virtually zero at the start of last year.
But all the recent stress in the banking system has pushed Wall Street to
believe the Fed likely won't pick up the pace again on its rate hikes.
Many economists and investors were already expecting at least a mild
recession to hit the U.S. economy given all the recent rate increases. The
worry is that strains for regional banks could raise the risk higher. That's
because of how important such banks are in giving loans to smaller- and
mid-sized companies to grow.
Drastic recalibrations by investors for what the Fed will do with interest
rates have caused historic swings in the bond market. Yields there have plunged
since earlier this month.
Consider the two-year Treasury, which tends to move closely with
expectations for the Fed. Its yield was above 5% earlier this month, at its
highest level since 2007, after data on inflation and other measures of the
economy kept coming in higher than expected.
Last week it plunged well below 4%, which is a massive move for the bond
market. It rose to 3.97% from 3.84% late Friday.
In markets abroad, stocks rose in Europe after falling across much of Asia.