Major indices on the U.S. New York stock market showed early gains on Monday, the 27th (local time), as concerns over the recent banking sector crisis eased somewhat due to news of First Citizens BancShares' acquisition of Silicon Valley Bank (SVB) and the possibility of further intervention by authorities.
As of 10 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was up 229.61 points (0.71%) from the previous close, trading around the 32,467 level. The S&P 500, focused on large-cap stocks, rose 25.19 points (0.63%) to about 3,996, while the tech-heavy Nasdaq index gained 54.72 points (0.46%) to reach approximately 11,878.
Investors are closely watching the movements of bank stocks today, while awaiting this week’s scheduled congressional hearings on the SVB-related banking crisis by the U.S. Senate and House of Representatives, the potential for additional support from financial authorities and major banks, speeches by Federal Reserve (Fed) officials, and the release of key economic indicators including the Personal Consumption Expenditures (PCE) price index.
Currently, all 11 sectors within the S&P 500 are showing gains. Notably, there is a pronounced rally in financial stocks, including regional banks. Earlier, the Federal Deposit Insurance Corporation (FDIC) announced that First Citizens BancShares would acquire SVB, which helped ease market concerns. Reports that U.S. authorities are considering expanding emergency lending programs to banks including First Republic also contributed to the regional bank rally.
Craig Erlam, senior market analyst at OANDA, said, "Authorities have been working hard over the weekend to clean up the turmoil of recent weeks," adding, "It is important that the U.S., Europe, and others demonstrate the ability to respond swiftly and decisively to these turbulent conditions and prevent further deterioration. This includes restoring confidence in the shaken market." Jan Hatzius of Goldman Sachs noted in an investor memo, "We expect the Treasury to provide support for uninsured deposits if necessary."
First Republic, considered the 'second SVB,' surged about 18% following reports that U.S. authorities are considering additional support measures to buy time for balance sheet strengthening. PacWest Bancorp rose 4%, and Western Alliance Bancorp gained over 5%. Supported by broad gains among regional banks, the SPDR S&P Regional Banking ETF also climbed nearly 2%. Deutsche Bank, which saw its credit default swaps (CDS) spike sharply amid crisis fears late last week, traded up nearly 5% today.
This week, numerous speeches by officials are scheduled. On the 28th and 29th, the U.S. Senate Banking Committee and House Financial Services Committee will hold hearings on the banking crisis that spread following the SVB collapse. Michael Barr, Fed Vice Chair for Supervision, is expected to testify. Additionally, Fed Governors Philip Jefferson, Lisa Cook, Christopher Waller, New York Fed President John Williams, Boston Fed President Susan Collins, and Richmond Fed President Thomas Barkin are also scheduled to speak.
Alongside this, key economic data will be released, including the Fed’s preferred inflation gauge, the February Personal Consumption Expenditures (PCE) price index, and the final estimate of U.S. GDP growth for Q4 last year. The PCE price index is projected to rise 4.7% year-over-year and 0.4% month-over-month. The finalized Q4 growth rate, previously preliminarily reported at 2.9% annualized in January and revised to 2.7% last month, will be closely watched for any further downward revision.
The market currently favors the view that the Fed will soon pause interest rate hikes. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of this morning, federal funds futures reflect over a 62% probability that the Fed will hold rates steady at the May FOMC meeting. This is higher than the roughly 48% probability a week ago but lower than the 83% probability seen yesterday. Investor expectations for rate cuts in the second half of the year are also spreading.
Michael Hewson, chief market analyst at CMC Markets, said, "After Friday’s sell-off, there is a bit of a relief rally," adding, "Since this week is the last week of the quarter, volatility is not expected to be very high."
Mohamed El-Erian, chief economic advisor at Allianz, dismissed some views that the recent banking crisis could lead to a recession. Appearing on CNBC’s Squawk Box, he emphasized, "There is no reason for negative GDP growth except for policy mistakes," and stated, "The economy is resilient."
In the New York bond market, Treasury yields rose slightly. The 10-year U.S. Treasury yield hovered around 3.49%, while the 2-year yield was near 3.95%.
European stock markets also showed gains. Germany’s DAX index traded 1.32% higher than the previous close. The UK’s FTSE rose 1.05%, and France’s CAC index gained 1.06%.
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