Wall Street slides on fears of contagion from banking crisis

  • First Republic Bank tumbles over dividend suspension
  • SVB Financieel seeks bankruptcy protection
  • FedEx jumps on full-year profit forecast
  • Indexes down: Dow 1.31%, S&P 1.17%, Nasdaq 0.80%

NEW YORK, March 17 (Reuters) – Wall Street fell on Friday at the end of a tumultuous week marked by the unfolding banking sector crisis and the gathering storm clouds of a possible recession.

All three indices were sharply lower during afternoon trading, with financial stocks (.SPNY) falling the most of the S&P 500’s major sectors.

While the benchmark S&P 500 is on course to finish higher than last Friday’s closing price this week, the Nasdaq and Dow have been heading for 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 SVB and Signature Bank (SBNY.O), sparking fears of contagion in the worldwide banking system.

“It feels like it’s been a month since Monday,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta, who added, “there will always be a concern based on past experience that any time a financial institution is in trouble, it’s systemic.”

“I don’t think there is a structural problem in the sector,” he said. “The banks just haven’t kept up with the interest rates they have to offer to attract and keep deposits.”

Over the past two weeks, the S&P Banking Index (.SPXBK) and the KBW Regional Banking Index (.KRX) are both down about 21%, their biggest two-week decline since March 2020, when the COVID-19 pandemic hit the economy in the steepest and most abrupt recession on record.

The day after news of an unprecedented $30 billion bailout package from major financial institutions, First Republic Bank (FRC.N) plunged 26.0% after the bank announced it would suspend its dividend.

Among First Republic’s peers, PacWest Bancorp (PACW.O) was down 14.8%, while Western Alliance (WAL.N) was down 13.0%.

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.

At last glance, financial markets have priced in a 70.1% chance that the central bank will raise its key target rate by 25 basis points, and a 29.9% chance that it will leave the current rate, according to the FedWatch tools from CME.

The Dow Jones Industrial Average (.DJI) fell 423.76 points, or 1.31%, to 31,822.79, the S&P 500 (.SPX) lost 46.21 points, or 1.17%, to 3,914.07 and the Nasdaq Composite (.IXIC) fell 93.16 points, or 0.8%, to 11,624.12.

All 11 major sectors of the S&P 500 were last in negative territory, with technology stocks (.SPLRCT) flirting with flipping green.

On the upside, FedEx Corp. (FDX.N) rose 8.1% after raising its current fiscal year forecast.

Falling issues outnumbered emerging on the NYSE by a ratio of 4.55 to 1; on Nasdaq, a ratio of 3.14 to 1 favored the fallers.

The S&P 500 posted 5 new highs in 52 weeks and 19 new lows; the Nasdaq Composite recorded 24 new highs and 242 new lows.

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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