[New York Stock Market] "Relief Rally" Bank Stocks Rebound, Nasdaq Rises Over 2%... Oil Prices Plunge

Major indices on the U.S. New York Stock Exchange opened higher on the 14th (local time) as bank stocks, which were hit hard by the Silicon Valley Bank (SVB) crisis, rallied mainly among regional banks. The February Consumer Price Index (CPI) released that day also showed the smallest increase in a year and a half, providing some relief to investors. However, international oil prices fell more than 4%, hitting their lowest level this year.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 32,155.40, up 336.26 points (1.06%) from the previous session. The S&P 500, which focuses on large-cap stocks, rose 64.80 points (1.68%) to 3,920.56, and the tech-heavy Nasdaq index closed at 11,428.15, up 239.31 points (2.14%). Meanwhile, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s “fear gauge,” fell more than 10% to the 23 level, calming down.

[Image source=Reuters Yonhap News]

Investors closely watched the aftermath of the SVB bankruptcy crisis, the February CPI released that morning, and movements in Treasury yields.

All 11 sectors in the S&P 500 showed gains. Banking, technology, and telecommunications stocks jumped more than 2%, leading the rally. Market anxiety triggered by the SVB crisis eased as authorities intervened, resulting in a broad rebound in regional bank stocks, including First Republic Bank. John Meyer, Chief Investment Officer (CIO) of Global X, said, "Regional banks are posting significant gains, which is reassuring the market."

First Republic, which had plunged the previous day, closed up 26.98% from the previous session. PacWest Bancorp rose 33.85%, Western Alliance Bancorp gained 14.36%, and KeyCorp jumped 6.94%. Large banks such as Wells Fargo (+4.58%) and Citigroup (+5.95%) also showed gains. Charles Schwab rose 9.19%.

Meanwhile, BuzzFeed slid more than 25% after revealing that most of its cash assets were held at the bankrupt SVB. Meta Platforms rose more than 7% after announcing plans for an additional 10,000 layoffs. This is the second round of restructuring within just four months, following a previous announcement of 11,000 job cuts, which accounted for over 10% of its total workforce. Meta Platforms’ market capitalization surpassed $500 billion for the first time since last June.

In the New York bond market that day, Treasury yields rose slightly. The rebound in regional bank stocks and the CPI in line with expectations helped the market recover moderately from the sharp decline the previous day. The yield on the two-year U.S. Treasury note, sensitive to monetary policy, rose from around 4.03% the previous day to about 4.24%. The 10-year yield moved from approximately 3.51% to 3.68%. Bloomberg cited expectations of a Fed easing in tightening as the reason for the recovery in the recently plummeting two-year yield. Wall Street experts emphasized that this crisis differs from the 2008 global financial crisis and drew a line against the possibility of liquidity contagion.

The CPI released before the market opened largely met expectations, providing some relief. According to the Department of Labor, the U.S. February CPI rose 6.0% year-over-year, marking the smallest increase since September 2021. January’s CPI had risen 6.4%. This figure aligns with or slightly undercuts expert forecasts compiled by Dow Jones and The Wall Street Journal, which ranged from 6.0% to 6.1%. The month-over-month CPI rose 0.4%. Adam Turnquist, Senior Technical Strategist at LPL Financial, said, "There are no big surprises in the CPI. The lack of surprises in the banking sector means this can be seen as a relief rally," adding, "The market is welcoming this."

However, the core CPI, which excludes the volatile energy and food sectors, rose 0.5% month-over-month, confirming persistent underlying inflationary pressures. Since the month-over-month increase was actually larger than January’s 0.4%, the Fed’s concerns about core inflation are likely to deepen. Currently, the Fed faces the dual challenge of stabilizing inflation and protecting the financial system amid rapidly spreading concerns about a financial system crisis following the SVB incident.

Following the CPI release, market expectations strengthened that the Federal Reserve will take a baby step (a 0.25 percentage point increase in the benchmark interest rate) at the March Federal Open Market Committee (FOMC) meeting. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of that afternoon, federal funds futures priced in more than a 77% chance that the Fed will opt for the usual 0.25 percentage point rate hike at the March FOMC. The baby step outlook rose from the previous day’s 65% level as the CPI confirmed both slowing inflation and concerns about core prices simultaneously.

The probability of a rate hold, which was 0% a week ago and 35% the previous day, stood at 22.5%. Although the hold outlook shrank somewhat from the previous day, expectations that the tightening stance itself will ease remain intact. Conversely, the possibility of a big step (a 0.5 percentage point rate hike), which was dominant just a week ago, dropped to 0%. Initially, the market had widely expected the Fed to take a big step at the March 21-22 FOMC meeting, and Fed Chair Jerome Powell had hinted at this possibility. However, after the SVB bankruptcy on the 10th, the big step option disappeared from the table.

Robert Pavlic, Chief Portfolio Manager at Dakota Wealth, said, "(The CPI released that day) indicates the Fed may pause rate hikes or raise by the minimum 0.25 percentage points," adding, "If the Fed is more concerned about credibility, it will raise by 0.25 percentage points, and that’s what they should do." Cindy Bory, a member of the Investment Policy Committee at asset management firm Corning, supported the baby step, saying, "The Fed will raise by 0.25 percentage points if no further banking issues arise," and added, "If rates are not raised, it could raise questions about whether the banking situation is so bad that inflation cannot be resolved."

Despite the rebound that day, market experts expressed strong caution about the aftermath of the SVB bankruptcy. Julian Emanuel of Evercore ISI mentioned the rebound in regional banks in the New York stock market and said, "It is uncertain how long this movement will last."

International credit rating agency Moody’s downgraded the outlook for the entire U.S. banking system from “stable” to “negative” that day, reflecting the impact of the SVB bankruptcy. Moody’s stated in a report, "This adjustment reflects the deposit withdrawals at SVB, Silvergate Bank, and Signature Bank, as well as the sharp deterioration in the operating environment following the bankruptcies of SVB and Signature Bank." This followed Moody’s warning the previous day that it would downgrade or review the credit ratings of seven banks, including First Republic.

The U.S. Department of Justice and the Securities and Exchange Commission (SEC) have launched full-scale investigations related to the SVB bankruptcy. The Wall Street Journal (WSJ) reported, citing sources, that the DOJ and SEC’s individual investigations are in preliminary stages. The investigation includes controversies over SVB Financial, SVB’s parent company, selling shares before the bankruptcy. Authorities are also expected to investigate whether management adequately informed customers and investors in advance about financial risks and business uncertainties. Shareholders have already filed a class-action lawsuit seeking damages against management.

International oil prices fell to their lowest level this year amid concerns over the SVB-triggered bankruptcy fallout and economic slowdown. On the New York Mercantile Exchange, April delivery West Texas Intermediate (WTI) crude oil prices closed at $71.33 per barrel, down $3.47 (4.64%) from the previous day. This is the lowest closing price since December 9 last year. The decline over the past two days approaches 7%.