[New York Stock Market] Bank Stocks Rally on SVB Sale... Dow and S&P Close Higher

The major indices of the U.S. New York stock market closed mixed near the flat line on Monday, the 27th (local time), as a rally in bank stocks was confirmed following First Citizens BancShares' decision to acquire Silicon Valley Bank (SVB).

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 32,432.08, up 194.55 points (0.60%) from the previous session. The S&P 500 index, which focuses on large-cap stocks, ended the day at 3,977.53, up 6.54 points (0.16%). Meanwhile, the tech-heavy Nasdaq index recorded 11,768.84, down 55.12 points (0.47%).

[Image source=Reuters Yonhap News]

Investors closely watched the movements of bank stocks that day while awaiting this week’s scheduled congressional hearings on the SVB-related banking crisis by the U.S. House and Senate, the possibility of 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.

Among the S&P 500 sectors, eight sectors including energy, financials, industrials, and materials rose, while three sectors including technology, communication services, and real estate declined. In particular, the rally in financial stocks, including regional banks, was notable. Earlier, the Federal Deposit Insurance Corporation (FDIC) announced that First Citizens BancShares would acquire SVB, easing market concerns. Foreign media reports that U.S. authorities are considering expanding emergency lending programs to banks including First Republic also contributed to the rebound in bank stocks.

Brian Levitt, global market strategist at Invesco, said, "Policymakers are taking measures to alleviate recent problems, improving market sentiment," and added, "The Fed’s expanded liquidity support has meaningfully eased previous concerns about potential bank runs." Jan Hatzius of Goldman Sachs stated in an investor memo, "The Treasury is expected to provide support for uninsured deposits if necessary," and added, "While Treasury action cannot be ruled out if severe banking stress recurs, the likelihood of such action currently appears low."

First Republic, considered the "second SVB," jumped about 12% from the previous session. Supported by broad gains among regional banks, the SPDR S&P Regional Banking ETF also rose nearly 1%. Deutsche Bank, which saw its credit default swaps (CDS) spike sharply amid crisis rumors late last week, rebounded nearly 5% that day. First Citizens, the new owner of SVB, surged about 50%. As international oil prices hit their highest level in about two weeks, energy-related stocks such as ExxonMobil (+2.19%) and Chevron (+1.02%) also rose.

However, technology stocks showed weakness. Alphabet (Google) fell 2.83%, and Meta dropped 1.54%. Economic media CNBC interpreted this weakness as a result of interest rate hike expectations dampening growth stock prospects. Related stocks also faced downward pressure after the U.S. Commodity Futures Trading Commission (CFTC) filed lawsuits against Binance, the world’s largest virtual asset exchange, and its CEO Zhao Changpeng. Coinbase Global fell 7.8%.

This week, numerous key officials are scheduled to speak. 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 recent SVB collapse. Michael Barr, Fed Vice Chair for Supervision, is expected to testify. Other speakers include Fed Governors Lisa Cook and Christopher Waller, New York Fed President John Williams, Boston Fed President Susan Collins, and Richmond Fed President Thomas Barkin.

Additionally, economic indicators such as the February Personal Consumption Expenditures (PCE) price index, a preferred inflation gauge of the Fed, and the final U.S. GDP growth rate for the fourth quarter of last year will be released. The PCE price index is estimated to rise 4.7% year-over-year and 0.4% month-over-month. The final 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 World Bank (WB) presented a pessimistic outlook in a report released that day, warning that without extraordinary measures such as expanding labor supply and productivity, global economic growth could be limited to 2.2% annually through 2030.

With concerns about the banking crisis somewhat easing, the market’s expectation for a Fed rate pause weakened compared to the previous day. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of that morning, the federal funds futures market priced in a more than 53% chance that the Fed will hold rates steady at the May FOMC meeting. This is higher than the 48% level a week ago but significantly lower than the 83% level the day before. The probability of a 0.25 percentage point rate hike stands at 46.7%.

In this context, Jeffrey Gundlach, CEO of DoubleLine Capital, appeared on CNBC’s Closing Bell and said, "The Fed will have to surrender." He analyzed that it would be logical for economic data to continue deteriorating over the coming weeks, leading to growing recession concerns. Jeremy Siegel, professor at the University of Pennsylvania’s Wharton School, criticized Fed Chair Jerome Powell’s earlier statement that the Fed is not considering rate cuts this year, saying, "The Fed has already beaten inflation," and calling the reluctance to cut rates a "mistake."

In the New York bond market, Treasury yields rose. The 10-year U.S. Treasury yield climbed to around 3.54%. The 2-year yield, sensitive to monetary policy, regained the 4% level.

Oil prices surged as banking sector concerns eased somewhat and news emerged of disruptions to oil exports by the Iraqi Kurdistan Regional Government. On the New York Mercantile Exchange, May delivery West Texas Intermediate (WTI) crude oil closed at $72.81 per barrel, up $3.55 (5.13%) from the previous session. The gain was the largest since October 3 of last year and the highest closing price since the 13th of this month.