[New York Stock Market] Rise on First Republic Rescue News... Nasdaq Up 2.48%

Major indices on the U.S. New York Stock Exchange closed higher on the 16th (local time) as concerns over financial risks eased following the injection of bailout funds by major U.S. banks into First Republic Bank, which had been engulfed in crisis rumors.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 371.98 points (1.17%) from the previous close to finish at 32,246.55. The S&P 500, focused on large-cap stocks, gained 68.35 points (1.76%) to close at 3,960.28, while the tech-heavy Nasdaq Composite climbed 283.23 points (2.48%) to end at 11,717.28.

Within the S&P 500, nine of the eleven sectors rose, excluding real estate and consumer staples. Expectations of easing Federal Reserve (Fed) tightening led to bargain buying in tech stocks, pushing the sector’s gains close to 3%. Microsoft rose 4.05%, Nvidia jumped 5.42%, and Alphabet (Google) gained 4.38%. Financials, telecommunications, and consumer discretionary stocks also showed rallies.

[Image source=Reuters Yonhap News]

Investors closely monitored the fallout from the Silicon Valley Bank (SVB) collapse and financial risks stemming from Credit Suisse. Earlier, Credit Suisse, facing a liquidity crisis, announced it would borrow up to 50 billion Swiss francs (approximately 70.3 trillion KRW) from the Swiss National Bank to bolster liquidity. Although this temporarily calmed the situation, stock prices, especially among regional banks, continued to decline in the morning session, maintaining market caution. However, the mood shifted after news emerged that major U.S. banks such as JPMorgan Chase and Bank of America (BoA) would intervene to rescue First Republic Bank.

First Republic Bank, which had recorded double-digit losses in the morning session, closed nearly 10% higher. PacWest Bancorp surged 8.42%. Shares of major U.S. banks including JPMorgan, BoA, Morgan Stanley, and Citigroup also rose by the high single digits. Eleven major U.S. banks plan to inject $30 billion (approximately 40 trillion KRW) to rescue First Republic Bank, which has been under pressure since the SVB collapse.

In the New York bond market, Treasury yields rose. The 2-year U.S. Treasury yield, sensitive to monetary policy, surpassed 4%, trading around 4.16%. The 10-year yield increased to about 3.56%. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s “fear gauge,” dropped more than 12% to the 22 level.

U.S. Treasury Secretary Janet Yellen reiterated the strength of the U.S. financial system during her opening remarks at the Senate Finance Committee hearing. She stated, "We reaffirm that our banking system is sound," and promised, "Americans can be confident that their deposits will be available when needed."

Investors also focused on the European Central Bank’s (ECB) big rate hike (a 0.5 percentage point increase) decision ahead of the Federal Open Market Committee (FOMC) meeting scheduled for March 21-22. At its monetary policy meeting, the ECB raised its key interest rate to 3.5%, with the deposit rate and marginal lending rate increased by 0.5 percentage points each to 3.0% and 3.75%, respectively. Despite concerns about the financial system, the ECB emphasized its commitment to the “fight against inflation.” This meeting attracted attention as it was the first major rate decision by a key central bank following the SVB collapse. ECB President Christine Lagarde declared, "We will fight inflation resolutely," and indicated the possibility of further hikes.

The ECB’s actions are expected to influence the Fed’s rate decisions. The Wall Street Journal (WSJ) noted, "Central banks still prioritize curbing persistently high inflation," and added, "The ECB’s decision shows how major central banks, including the Fed, will respond to market stress signals triggered by the failures of two U.S. banks." The Fed is also expected to release its dot plot reflecting future rate projections at the March FOMC.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of the afternoon, federal funds futures market prices imply about an 82% chance that the Fed will raise rates by 0.25 percentage points at the March FOMC, up from 54% the previous day. The probability of a rate hold, which had risen to 45% the day before, dropped to 18% as the Credit Suisse-related crisis eased with official intervention. The chance of a big rate hike (0.5 percentage points) has remained at 0% since the SVB collapse.

The U.S. unemployment data released on the same day fell short of expectations. According to the U.S. Department of Labor, initial jobless claims for the week of March 5-11 decreased by 20,000 to 192,000, below the expert forecast of 205,000 compiled by the Wall Street Journal. Continuing claims, representing those receiving benefits for at least two weeks, also dropped by 29,000 to 1.68 million.

Also released on the day, U.S. housing starts for February rose 9.8% month-over-month to 1.45 million units, exceeding the forecast of 1.31 million. New building permits, a leading indicator of housing market trends, increased 13.8% to 1.52 million units.

International oil prices rebounded after four trading days on news of a meeting between major oil producers Saudi Arabia and Russia. On the New York Mercantile Exchange, April delivery West Texas Intermediate (WTI) crude oil closed at $68.35 per barrel, up 74 cents (1.09%) from the previous close.