Wall Street ended sharply lower on fears of bank contagion

  • First Republic Bank tumbles over dividend suspension
  • SVB Financieel seeks bankruptcy protection
  • FedEx jumps on full-year profit forecast
  • Indexes down: Dow 1.19%, S&P 1.10%, Nasdaq 0.74%

NEW YORK, March 17 (Reuters) – Wall Street closed lower on Friday, marking the end of a tumultuous week dominated by an unfolding banking sector crisis and the gathering storm clouds of a potential recession.

All three indices ended the session deep in negative territory, with financial stocks (.SPNY) falling the most of the S&P 500’s major sectors.

While the benchmark S&P 500 ended this week higher than last Friday’s close, the Nasdaq and the Dow posted weekly declines.

SVB Financial Group (SIVB.O) announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank (SBNY.O), sparking fears of contagion around the world flared up the global banking system.

“(The sell-off) is a little over the top,” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “However, some concerns about overall liquidity and a possible liquidity crisis are justified.”

Those concerns have spread to Europe as Credit Suisse (CSGN.S) stocks stumbled over liquidity problems, prompting policymakers to scramble to reassure markets.

“This goes way beyond just a run on SVB or First Republic, it’s about the real impact of these rate hikes on capital and balance sheets,” Pursche added. “And you see it impacting big institutions like Credit Suisse, and that’s upset people.”

Over the past two weeks, the S&P Banking Index (.SPXBK) and the KBW Regional Banking Index (.KRX) are down 4.6% and 5.4% respectively, their biggest two-week decline since March 2020.

First Republic Bank (FRC.N) plunged 32.8% after the bank announced it was suspending its dividend, reversing Thursday’s surge fueled by an unprecedented $30 billion bailout package from major financial institutions

Among First Republic’s peers, PacWest Bancorp (PACW.O) was down 19.0%, while Western Alliance (WAL.N) was down 15.1%.

US-traded shares of Credit Suisse also closed sharply lower, down 6.9%.

Investors are now turning their eyes to the Federal Reserve’s two-day monetary policy meeting next week.

Given recent developments in the banking sector and data pointing to a weakening economy, investors have revised their expectations about the size and duration of the Fed’s restrictive rate hikes.

“This mini-banking crisis has increased the likelihood of a recession and accelerated the timeline of the economy’s slowdown,” Pursche said. “It’s normal for the Fed to rethink its course of action, but it’s still very clear that while inflation is slowing, it’s still a major concern and needs to be brought under control.”

At last glance, financial markets have priced in a 60.5% chance that the central bank will raise its key target rate by 25 basis points, and a 39.5% chance that it will leave the current rate, according to the FedWatch tools from CME.

The Dow Jones Industrial Average (.DJI) fell 384.57 points, or 1.19%, to 31,861.98, the S&P 500 (.SPX) lost 43.64 points, or 1.10%, to 3,916.64 and the Nasdaq Composite (.IXIC) fell 86.76 points, or 0.74%, to 11,630.51.

All 11 major sectors of the S&P 500 ended the session in negative territory.

On the upside, FedEx Corp. (FDX.N) rose 8.0% after raising its current fiscal year forecast.

Falling issues outnumbered emerging issues on the NYSE by a ratio of 4.07 to 1; on Nasdaq, a ratio of 2.94 to 1 favored the fallers.

The S&P 500 posted 5 new highs in 52 weeks and 20 new lows; the Nasdaq Composite recorded 29 new highs and 320 new lows.

Volume on the US stock exchanges was 19.41 billion shares, compared to the average of 12.49 billion over the past 20 trading days.

Reporting by Stephen Culp in New York Additional reporting by Shubham Batra and Amruta Khandekar in Bengaluru Editing by Matthew Lewis

Our Standards: The Thomson Reuters Principles of Trust.

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