[New York Stock Market] Rise on Eased Bank Risks... Dow Up 1.2%

Major indices on the U.S. New York Stock Exchange closed higher on the 20th (local time) as concerns over banking sector risks eased somewhat following UBS's decision to acquire Credit Suisse (CS), while investors awaited the Federal Reserve's (Fed) interest rate decision this week.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 32,244.58, up 382.60 points (1.20%) from the previous session. The S&P 500, which focuses on large-cap stocks, rose 34.93 points (0.89%) to 3,951.57, and the tech-heavy Nasdaq index ended the day at 11,675.54, up 45.03 points (0.39%).

[Image source=Reuters Yonhap News]

All 11 sectors in the S&P 500 recorded gains, with notable rallies in energy and materials stocks. Financial stocks also rose more than 1%. The previous day, UBS agreed to acquire CS, which was facing a liquidity crisis, slightly easing market concerns. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," dropped more than 5% to the mid-24 range compared to the previous session.

Earlier, UBS signed an acquisition agreement with CS for about 3 billion Swiss francs (approximately 4.24 trillion KRW). To prevent market disruption, Swiss authorities actively intervened before the Asian financial markets opened on the 20th to finalize the deal. Following UBS's announcement of the CS acquisition, central banks from five countries?the Fed, Canada, the UK, Japan, the ECB, and Switzerland?also announced a joint response to increase liquidity through dollar swap agreements. Additionally, news emerged that the U.S. Federal Deposit Insurance Corporation (FDIC) agreed to sell the assets and liabilities of Signature Bank to New York Community Bancorp, further reassuring investors.

Art Hogan, Chief Market Strategist at B. Riley Wealth Management, commented on UBS's acquisition of CS, saying, "This is clearly good news amid overall concerns about global banking stability," adding that "there had been an overreaction to regional banks before."

The SPDR Regional Banking ETF, which had fallen 14% last week due to the fallout from the Silicon Valley Bank (SVB) collapse, closed up 1.11% from the previous session. PacWest Bancorp rose 30.23%, and Fifth Third Bancorp gained 5.05%. New York Community Bancorp, which is pursuing the acquisition of Signature Bank, also surged more than 31%. While UBS Group's shares listed on the New York Stock Exchange rose 3.30%, CS shares plunged 52.99%.

However, First Republic Bank, which faced crisis rumors immediately after the SVB collapse, saw its shares fall more than 47% after S&P Global downgraded its credit rating again. Since March 8, its stock price has dropped nearly 90%. S&P Global downgraded First Republic's credit rating three notches from 'BB+' to 'B+' the previous day. Although emergency capital injections temporarily addressed urgent issues, the assessment was that First Republic's significant challenges in business, liquidity, funding, and profitability remain unresolved.

Reports from The Wall Street Journal (WSJ) and CNBC indicated that Jamie Dimon, Chairman of JPMorgan Chase, is leading discussions on additional support for First Republic, and that capital-raising measures by major banks are expected to continue.

Eric Dittmann, President of The Wealth Alliance, stated, "There is a fundamental problem," adding, "Customers with uninsured deposits at regional banks are nervous, and the banking system is based on trust. If they are not 100% confident that their deposits will be there when needed (for withdrawal), they will not leave their money there." Edward Moya, Senior Market Analyst at OANDA, also pointed out that concerns about the banking system remain, noting, "Despite several measures to contain financial risks, risk aversion will not disappear in the market until there is confidence that the Fed has finished raising interest rates."

Investor attention is focused on the March Federal Open Market Committee (FOMC) regular meeting scheduled for the 21st-22nd. Given the assessment that the rapid rate hikes triggered the SVB collapse, the previously likely "big step" (a 0.5 percentage point increase in the benchmark interest rate) has effectively been discarded. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of the morning of the 20th, the federal funds futures market reflects more than a 77% probability that the Fed will raise rates by 0.25 percentage points at the March FOMC. The probability of a rate hold is 22.5%, and the chance of a big step is 0%.

Krishna Guha, an analyst at Evercore ISI, said, "The 0.25 percentage point increase is the most likely," but also noted that the possibility of a rate hold remains due to the recent strengthening of currency swap arrangements by major central banks. Michael Darda, Chief Economist at MKM, expressed concern that a 0.25 percentage point hike by the Fed this week "would be a mistake." He emphasized that even if the Fed skips a rate hike this month, monetary conditions remain tight. Conversely, Mark Hackett of Ashenwide warned that a Fed rate hold could lead to panic in the stock and bond markets.

In the New York bond market, Treasury yields rose. The 10-year U.S. Treasury yield increased to 3.49%, and the 2-year yield rose to around 3.96%. This upward trend was due to eased concerns in the banking sector following UBS's acquisition of CS. However, Jeffrey Gundlach, CEO of DoubleLine Capital, predicted that Treasury yields could fall further due to financial risks. He also added that the rapid steepening following a prolonged inversion of short- and long-term Treasury yields signals a recession.

The value of the U.S. dollar fell slightly. The Dollar Index, which measures the dollar's value against six major currencies, traded at around 103.3, down 0.38% from the previous session.

International oil prices rose. On the New York Mercantile Exchange, April delivery West Texas Intermediate (WTI) crude oil closed at $67.64 per barrel, up 90 cents (1.35%) from the previous day. The rise was attributed to improved risk appetite following eased banking sector concerns and bargain buying after recent declines.