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Most US Stocks Tick Up Monday 03/27 15:42
A choppy day of trading on Wall Street ended with stocks mostly higher
Monday, as battered banks showed more strength, at least for now.
(AP) -- A choppy day of trading on Wall Street ended with stocks mostly
higher Monday, as battered banks showed more strength, at least for now.
The S&P 500 eked out a 0.2% gain after having been up by as much as 0.8%.
Banks and energy stocks led the gainers in the benchmark index, outweighing
losses in among technology and communications companies.
The Dow Jones Industrial Average rose 0.6%, while the Nasdaq composite fell
0.5%, reflecting losses in Google parent Alphabet and other tech companies.
Gainers outnumbered decliners on the the New York Stock Exchange by nearly 3-1.
The S&P and Nasdaq are coming off two straight weekly gains, even as markets
have been in turmoil following the second- and third-largest U.S. bank failures
in history earlier this month. Investors have been hunting for which banks
could be next to fall as the system creaks under the pressure of much higher
interest rates.
Still, financial stocks were among the biggest gainers Monday. First
Citizens' stock soared 53.7% after it said it would buy most of Silicon Valley
Bank, whose failure sparked the industry's furor earlier this month. As part of
the deal, the Federal Deposit Insurance Corp. agreed to share some of the
losses that may arise from some of the loans First Citizens is buying.
Other banks that investors have highlighted as the next potential victims of
a debilitating exodus of customers also strengthened.
First Republic Bank jumped 11.8% and PacWest Bancorp rose 3.5%. Most of the
focus in the U.S. has been on banks that are below the size of those that are
seen as "too big to fail."
A broader worry has been that all the weakness for banks could cause a
pullback in lending to small and midsized businesses across the country. That
in turn could lead to less hiring, less growth and a higher risk of a
recession. Many economists were already expecting an economic downturn before
all the struggles for banks.
"Unfortunately this is what happens when you tighten policy that quickly,"
Amanda Agati, chief investment officer of PNC Asset Management Group, said
about the past year's swift rise in interest rates. "Things break in the
system. Some of the weakest links are starting to show up."
The worries are international. In Europe, Credit Suisse's stock tumbled so
quickly this month that regulators brokered its takeover by rival Swiss banking
giant UBS. At the end of last week, the market's sights set on Deutsche Bank,
whose stock fell sharply as analysts questioned why it had come under pressure.
"So far, regulators and lawmakers have worked together to keep the crisis
under control, and they have used all the help they could to do so," Naeem
Aslam of Zaye Capital Markets said in a commentary. "This particular element is
keeping the hope alive that whatever the issue was with Deutsche Bank,
lawmakers are going to address it, as there is simply too much to lose if
things are left alone."
On Monday, Deutsche Bank shares rose 6.1% in Germany. Other big banks across
Europe also found some stability. These giant banks don't share many
characteristics with the smaller and mid-sized banks in the United States that
have been under pressure. But all are navigating much more scrutiny from
investors broadly. Their world has become much more difficult because interest
rates have jumped very high very quickly.
The Federal Reserve and other central banks announced their latest increases
to interest rates in recent weeks as they fight inflation that's still gripping
worldwide. Higher rates can undercut inflation by slowing the economy, but they
raise the risk of a recession. They also hurt prices for stocks, bonds and
other investments.
The Fed has pulled its key overnight rate to a range of 4.75% to 5%, up from
virtually zero at the start of last year. It indicated last week that the
troubles in the banking system could end up acting like rate hikes on their
own, by slowing lending.
The managing director of the International Monetary Fund, Kristalina
Georgieva, told a conference in Beijing on Sunday that risks to financial
stability have risen as interest rates climbed. She said actions by central
banks and other regulators have helped to ease strains on markets, "but
uncertainty is high, which underscores the need for vigilance."
The Fed has hinted it may raise rates just one more time this year before
leaving them alone for a while. Traders on Wall Street, though, don't believe
it. Many are betting the central bank will have to cut rates as soon as this
summer to prop up the economy.
Such hopes for rate cuts have helped stocks recently despite all the bank
turmoil. But they could also be setting the market up for disappointment.
PNC's Agati said she believes the Fed and doesn't expect a rate cut
imminently. Even if one were to arrive, it would likely be a signal of a much
worse economy, which itself would be bad for stocks. She's expecting profits to
fall this year for companies amid a mild recession, which means she sees stocks
potentially falling 10% to 15%.
"We're just not there," she said. "Either the market is completely
delusional or the market is already looking past" a possible recession based on
"how benign it is compared with the pandemic or financial crisis" of 2008. "In
either case, I think the market is delusional to think of it that way."
Huge, quick swings in expectations for the Fed have caused historic-sized
moves in the bond market.
Yields jumped Monday in their latest lunge. The yield on the 10-year
Treasury, which helps set rates for mortgages and other important loans, rose
to 3.53% from 3.37% late Friday. It was above 4% earlier this month.
Lower rates can act like steroids for stocks, and technology and other
high-growth stocks tend to get a particularly big boost. That has helped the
S&P 500, which which is dominated by such Big Tech stocks as Apple and
Microsoft.
Other areas of the market that don't benefit from such Big Tech stocks have
been weaker. The Russell 2000 index of smaller stocks, for example, is on track
for a 7.6% loss this month versus a 0.2% gain for the S&P 500.
The Russell outgained the broader market Monday, however. The index rose
18.75 points, or 1.1%, to 1,753.67.
Elsewhere on Wall Street, the S&P 500 rose 6.54 points to 3,977.53. The Dow
added 194.55 points to 32,432.08, and the Nasdaq fell 55.12 points to 11,768.84.
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