The Dow Jones Industrial Average dropped 384.57 points, or 1.19%, to 31,861.98, the S&P 500 dropped 43.64 points, or 1.10%, to 3,916.64, and the Nasdaq Composite fell 86.76 points, or 0.74%, to 11,630.51.
Wall Street closed lower on Friday, capping off a tumultuous week marked by an unfolding banking crisis and the gathering storm clouds of a possible recession.
All three indexes finished the session in the red, with financial stocks falling the most among the S&P 500’s major sectors.
While the benchmark S&P 500 ended the week higher than it did on Friday, the Nasdaq and Dow fell for the week.
SVB Financial Group announced it would file for Chapter 11 bankruptcy protection, the latest twist in a saga that began last week with the failures of Silicon Valley Bank and Signature Bank, sparking fears of contagion throughout the global banking system.
“It’s an overreaction,” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “However, some of the concerns about overall liquidity and a potential liquidity crunch are valid.”
Concerns about liquidity have spread to Europe, with Credit Suisse shares falling as a result, prompting policymakers to scramble to reassure markets.
“This is about more than just a run on SVB or First Republic; it’s about the real impact of interest rate hikes on capital and balance sheets,” Pursche added. “And you’re seeing it affect large institutions like Credit Suisse, which has people worried.”
The S&P Banking index and the KBW Regional Banking index both fell 4.6% and 5.4% in the last two weeks, respectively, their largest two-week drops since March 2020.
First Republic Bank fell 32.8% after the bank stated it will withhold its dividend, erasing Thursday’s rally fueled by an extraordinary $30 billion bailout package from huge financial institutions.
Pursche claimed that the “little financial crisis” had expedited the economy’s slowing timeframe and raised the likelihood of a recession. “The Fed should naturally reevaluate its strategy, but it’s still quite evident that even if inflation is falling it’s still a worry and has to be kept under control,” says the author.
According to CME’s FedWatch tool, at last look, financial markets are pricing in a 60.5% chance that the central bank will increase its key target rate by 25 basis points and a 39.5% chance that it will maintain the present rate.
The S&P 500 lost 43.64 points, or 1.10%, to 3,916.64, the Nasdaq Composite dropped 86.76 points, or 0.74%, to 11,630.51, and the Dow Jones Industrial Average sank 384.57 points, or 1.19%, to 31,861.98.
The S&P 500’s 11 major sectors all finished the session in the red.
FedEx Inc. gained 8.0% after raising its outlook for the current fiscal year, which was positive.
On the NYSE, declining issues outnumbered rising ones by a ratio of 4.07 to 1; on the Nasdaq, the ratio was 2.94 to 1.
The Nasdaq Composite registered 29 new highs and 320 new lows, while the S&P 500 set 5 new 52-week highs and 20 new lows.
Compared to the 12.49 billion average for the previous 20 trading days, 19.41 billion shares were traded on U.S. exchanges.
Among First Republic’s peers, PacWest Bank declined 19.0% and Western Alliance slid 15.1%.
Credit Suisse’s US-traded shares finished 6.9% down as well.
Investors’ attention is now focused on the Federal Reserve’s two-day monetary policy meeting next week.
Investors have modified their expectations on the extent and duration of the Fed’s restrictive interest rate rises in light of recent events in the banking sector and statistics indicating a slowing economy.
