Stocks Rally After Bank Rescue; Yields Jump: Markets Wrap
(Bloomberg) -- US stocks ended the day higher after a First Republic Bank rescue package was secured, sparking a rebound in shares of embattled regional lenders. Treasuries fell after the European Central Bank delivered a rate hike that added to bets the US central bank will also raise next week.
Most Read from Bloomberg
Schwab Clients Shift From Prime Funds to Government Portfolios
How Dimon and Yellen Helped Secure $30 Billion Lifeline for First Republic
The S&P 500 notched its largest one-day advance since January after the biggest banks in the US agreed to contribute $30 billion in deposits to First Republic. The regional lender’s shares had tumbled more than 60% before Thursday as investors speculated the bank could be the next to fail after two high-profile demises touched off the crisis last week. An index of regional banks closed higher, the gauge is still down over 20% this March. The tech-heavy Nasdaq jumped 2.7%% to a one-month high.
Tech has become more sensitive to interest rates, said Tony Welch, chief investment officer at SignatureFD.
“When economic growth becomes more scarce, you want to look to those industries and sectors that can produce the growth. Tech is certainly one of those that can potentially be a better grower,” Welch said.
Meanwhile, Treasury Secretary Janet Yellen’s prepared remarks presented to Capitol Hill Thursday “did a good job of boosting confidence about the banking system,” said Art Hogan, chief market strategist at B. Riley Wealth Management.
“They’d like to see the support come from the private sector and that is likely going to be now the first of many larger, more sound banks supporting some of those banks that might have impaired balance sheets,” Hogan said of the big lenders coming to the regional bank’s aid.
The First Republic news comes after a lifeline from Swiss regulators overnight stabilized Credit Suisse Group AG, easing worries that the European lender would lead to a cascading crisis in that region. The idea of a forced combination with a larger rival, UBS Group AG, was shot down on Thursday and receipts in Credit Suisse ended the session unchanged. The cost to insure the Swiss bank’s debt has been rising.
“That the market is reacting relatively positively to the fact that we are applying some guardrails here shouldn’t necessarily be a catalyst for markets to move much higher,” said Meera Pandit, JPMorgan Asset Management global market strategist on Bloomberg TV. “There is still some vulnerability here to a correction because we don’t know how this continues to evolve.”
Markets were also digesting a European Central Bank rate hike and comments from the ECB president that inflation is projected to remain too high for too long. The Federal Reserve is expected to raise interest rates by a quarter percentage point next week. Rising odds for that move sent two-year Treasury yields back above 4%, though they remained lower than they were just a week ago.
Government securities swung in the session with yields eventually climbing. A measure of Treasury market volatility touched levels last seen in the midst of the global financial crisis this week.
FedEx Corp. shares jumped in afterhours trading following earnings from the delivery company that beat estimates and its outlook for the year was boosted. United Parcel Service Inc. also climbed.
Quarterly triple witching, where contracts for index futures, equity index options and stock options all expire, could amp up swings in Friday’s trading.
All eyes are now on the Federal Reserve’s policy meeting next week, with traders debating whether the central bank will increase interest rates. Market pricing suggests the Fed will soon pivot and will start cutting rates this year.
Data Thursday showed first-time unemployment claims dropped more than analysts’ estimates last week, while housing starts and building permits exceeded expectations, underscoring the economic resilience that’s allowed the Fed to tighten aggressively over the past year.
“Central banks appear to be willing to push through the problems higher rates are causing in order to address inflation,” Louis Navellier, chief investment officer of Navellier & Associates wrote in his daily newsletter. He views the ECB’s rate increase as a “test run” ahead of the next Fed meeting.
“All else being equal, more restrictive lending increases recession risk,” he said. “Expect lots of volatility in the near term and remain cautious as this banking crisis plays out.”
The S&P 500 rose 1.8% as of 4 p.m. New York time
The Nasdaq 100 rose 2.7%
The Dow Jones Industrial Average rose 1.2%
The MSCI World index rose 1.3%
The Bloomberg Dollar Spot Index fell 0.3%
The euro rose 0.3% to $1.0614
The British pound rose 0.5% to $1.2118
The Japanese yen was little changed at 133.47 per dollar
Bitcoin rose 2.5% to $25,003.38
Ether rose 1.8% to $1,683.68
The yield on 10-year Treasuries advanced 11 basis points to 3.57%
Germany’s 10-year yield advanced 16 basis points to 2.29%
Britain’s 10-year yield advanced 10 basis points to 3.43%
West Texas Intermediate crude rose 0.7% to $68.09 a barrel
Gold futures fell 0.4% to $1,924.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Emily Graffeo and Isabelle Lee.
(An earlier version of this story was corrected to show that Credit Suisse is seeking to buy back debt.)
Most Read from Bloomberg Businessweek
Brazil’s Surprise Oil Tax Puts $20 Billion in Investment at Risk
Glencore CEO Rides Coal Windfall on the Way to a Low-Carbon World
©2023 Bloomberg L.P.