Wall Street falls sharply on bank contagion fears

  • First Republic Bank collapses after suspending dividend
  • SVB Financial is seeking bankruptcy protection
  • FedEx raises 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 crisis in the banking sector and storm clouds of a possible recession.

Financial stocks ( .SPNY ) were the lowest among the S&P 500’s major sectors, with all three indexes ending the session deep in negative territory.

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

SVB Financial Group ( SIVB.O ) announced it will seek Chapter 11 bankruptcy protection, the latest development in the drama that began with the collapse of Silicon Valley Bank and Signature Bank ( SBNY.O ) last week, prompting fears of contagion. Global Banking System.

“(The sell-off) is an overreaction,” said Oliver Bursey, senior vice president at Wealthspire Advisors in New York.

Credit Suisse ( CSGN.S ) shares were hit by liquidity worries that spilled over into Europe, prompting policymakers to reassure markets.

“This goes beyond a run on SVP or First Republic, these interest rate hikes will have a real impact on capital and the balance sheet,” Bursey added. “You’re seeing it affect big companies like Credit Suisse, and it’s made people nervous.”

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

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

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

Credit Suisse’s U.S.-traded shares also fell sharply, down 6.9%.

Investors now turn their gaze to the Federal Reserve’s two-day monetary policy meeting next week.

In view of recent developments in the banking sector and softening data on the economy, investors have adjusted their expectations regarding the size and duration of the Fed’s rate hikes.

“This mini-banking crisis has increased the likelihood of a recession and accelerated the recession timeline for the economy,” Bursey said. “It’s natural for the Fed to reconsider its course of action, but it’s becoming increasingly clear that inflation remains a serious concern and needs to be brought under control.”

At last glance, according to CME’s FedWatch tool, the Fed has a 60.5% probability of raising its key target rate by 25 basis points and a 39.5% probability that the current rate will remain unchanged.

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 added 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.

Declining issues outnumber advancing issues by a 4.07-to-1 ratio on the NYSE; On the Nasdaq, a 2.94-to-1 ratio favored decliners.

S&P 500 hits 5 new 52-week highs and 20 new lows; The Nasdaq Composite posted 29 new highs and 320 new lows.

Volume in US equities was 19.41 billion shares, compared to an average of 12.49 billion over the past 20 trading days.

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(Reporting by Stephen Culp in New York, Additional reporting by Shubham Patra and Amrutha Khandekar in Bengaluru Editing by Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.

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