The S&P 500 and the Dow Jones gained on Monday as a state-backed rescue of embattled lender Credit Suisse allayed fears about bank contagion risks, while investors weighed odds of the Federal Reserve pausing its rate hikes this week.
Markets have scaled back expectations for an aggressive 50-basis-point interest rate hike from the Fed at its March 22 meeting, following the turmoil in the banking sector triggered by the collapse of Silicon Valley Bank and Signature Bank earlier this month.
Traders are leaning towards a 25-basis-point rate hike, with 19.5% expecting a pause, as per CME Group’s Fedwatch tool.
Over the weekend, UBS agreed to buy rival Credit Suisse for $3.23 billion, in a merger engineered by Swiss authorities to avoid more market-shaking turmoil in global banking.
While the deal helped calm jitters about the banking sector, U.S.-listed shares of Credit Suisse plummeted 54.9% to hit a fresh record low. UBS reversed premarket declines to jump 2.9%. Big U.S. banks such as JPMorgan Chase & Co, Citigroup and Morgan Stanley rose between 1.1% and 1.9%.
Regional bank First Republic Bank slid nearly 41% following a downgrade by S&P Global and a report of more fundraising that fanned worries about the bank’s liquidity despite a $30-billion rescue last week. Trading in shares of the bank was halted several times due to volatility.
PacWest Bancorp jumped 11.5% after the bank said deposit outflows had stabilized, while New York Community Bancorp gained 32.1% after the bank’s unit agreed to buy deposits and loans from Signature Bank.”There (is) more good news than bad news on the banking front,” said Art Hogan, chief market strategist at B Riley Wealth.
“First and foremost, the Credit Suisse, UBS merger certainly takes a lot of stress out of the global banking system and Signature Bank finding a suitor over the weekend was also something that investors are at least feeling more confident about.”
The S&P Banking index and the KBW Regional Banking index, which on Friday had logged their sharpest two-week drop since March 2020, rose 1.4% and 2.6%, respectively.
Keeping the Nasdaq under pressure, megacaps Microsoft and Alphabet fell 3% and 0.6%, respectively.
All the S&P sector indexes, barring information technology, were in the green, with energy leading the pack, up 1.9%. Shares of Amazon.com fell 2%, paring some early declines following the company’s plans of slashing another 9,000 jobs.
Investors await economic data including existing home sales, weekly jobless claims and durable goods this week to gauge the strength of the U.S. economy.
At 12:05 p.m. ET, the Dow Jones Industrial Average was up 295.83 points, or 0.93%, at 32,157.81, the S&P 500 was up 23.21 points, or 0.59%, at 3,939.85, while the Nasdaq Composite was down 1.68 points, or 0.01%, at 11,628.83.
Among other stocks, Bed Bath & Beyond dropped 17.9% after seeking shareholder approval for a reverse stock split.
Advancing issues outnumbered decliners by a 2.21-to-1 ratio on the NYSE and by a 1.23-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week high and five new lows, while the Nasdaq recorded 18 new highs and 179 new lows.