There is a recovery on Wall Street, albeit very uncertain, due to bank stocks, which are under pressure after the roundup of news that saw US regional banks as protagonists.
At about 16.10 Italian time, the Dow Jones is up 0.51%, the S&P 500 is up 0.45%, the Nasdaq is up 0.72%.
First the KO of SVB Silicon Valley bank, then the announcement of the closure, also, of the crypto bank Signature Bank. Investors now fear that First Republic is also in trouble.
The stock thus sank by more than 75%, before being suspended due to excessive downside. Thud also for Western Alliance Corp -74%, and the other banks, much more solid, the so-called Big Banks, also suffer, with decidedly more contained declines. JP Morgan falls by about 1%, Bank of America worse with -2.8%, Goldman Sachs -2.2%, Citigroup slips by more than 5%.
There is good news for Silicon Valley Bank and Signature depositors. The joint announcement of the US Treasury, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, yesterday, was in fact double.
On the one hand, the authorities announced their decision to close Signature Bank, to prevent the contagion of the crisis triggered by the crash of the SVB start-up bank, citing the presence of systemic risk (for Signature).
Fears of a new Lehman Brothers-style event and the knowledge that SVB was the biggest US bank failure since the 2008 Washington Mutual crash triggered heavy selling on Wall Street.
The Dow Jones Industrial Average fell for the fourth consecutive session on Friday, sliding 345.22 points, or 1.07%, to close at 31,909.64. The S&P 500 lost 1.45% to 3,861.59, the Nasdaq Composite tumbled 1.76% to 11,138.89.
All three major US stock indexes finished the week lower.
Notably, the Dow Jones lost 4.44%, reporting its worst week since June 2022; the S&P 500 suffered a decline of 4.55%, while the Nasdaq lost 4.71%.
On the other hand, the American authorities yesterday announced the creation of a new Bank Term Funding Program (BTFP) aimed at arming depositors, ie current account holders at the banks hit by the crisis, SVB and Signature.
The Facility will offer loans of up to one year to banks and other financial institutions.
“This move – announced the US federal authorities – is aimed at ensuring that the US banking system continues to ensure its vital functions, in order to protect deposits and to provide access to credit for households and businesses, in a way that supports sustainable and robust economic growth”.
However, sentiment towards US regional banks is still very negative. In fact, the victim of the sell-offs is not only First Republic: on Wall Street the sales also attack the securities of other regional banks such as PacWest Bancorp (-42%) and Western Alliance Bancorp, the latter also with a fall of over 70 %, while KeyCorp loses more than 27%.
First Republic announced yesterday that it has received additional liquidity from the Federal Reserve and banking giant JPMorgan Chase, adding that the injected funding has increased its level of unused cash to $70 billion.
“First Republic’s capital and liquidity are very strong, and its capital remains well above the regulatory threshold set for well-capitalised banks,” founder Jim Herbert and CEO Mike Roffler said in a statement. a joint statement.
But the market is once again launching the contagion alert on banks, fearing the worst for the other regional banks, after the collapse of Silicon Valley Bank and Signature.
Investor anxiety is only partially subsiding. The indices are kept afloat for now by the rises of hi-tech stocks such as Apple, Microsoft and Alphabet. But defensive stocks are also doing well, such as Procter & Gamble, Coca-Cola and PepsiCo, just as pharmaceutical stocks are positive, after the news relating to the agreement with which the giant Pfizer will buy Seagen for a value of approximately $43 billion. Seagen jumps about 15%; also Moderna, Johnson & Johnson and Eli Lilly did well.
Watch out for the trend of the VIX, the CBOE Volatility Index of fear, which jumped this morning to 29.03, the record since 2022, after 17.06 at the beginning of the year.
A value of the VIX above 30 usually implies a context of high volatility and risk.
Purchases of US Treasuries continue: the result is a sharp drop in yields.
In particular, two-year US Treasury rates, which are the most sensitive to the Fed’s monetary policy decisions, have tumbled by 100 basis points, or a full percentage point, since last Wednesday’s session, reporting the sharpest plunge in three days from October 22, 1987 when, in the span of three sessions, yields plunged by 117 basis points.
Three days earlier, on October 19, 1987, the so-called Black Monday had taken place, which saw the US S&P 500 stock index fall by 20%, reporting the strongest loss in one session in history.
By way of comparison, it should be remembered that, in the three days following the terrorist attacks of 11 September 2001, US Treasury rates fell less than today, slipping by around 63 basis points in three sessions.
Two-year Treasury rates tumbled more than 50 basis points to 4.022% today, while 10-year Treasury rates slip more than 20 basis points to 3.44%.