Major indices on the U.S. New York Stock Exchange opened higher on the 29th (local time) as investors increasingly bet that the worst of the recent banking sector crisis is over.
As of 10 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was up 242.31 points (0.75%) from the previous close, trading around the 32,636 level. The large-cap S&P 500 index rose 42.53 points (1.07%) to about 4,013, while the tech-heavy Nasdaq index gained 162.96 points (1.39%) to reach approximately 11,879.
All 11 sectors within the S&P 500 are currently showing gains. In particular, real estate, technology, and materials stocks are leading the rally. Big tech leaders such as Amazon, Tesla, Meta Platforms, Apple, and Microsoft are all up between 1% and 2% compared to the previous close. Micron surged more than 6% after releasing quarterly results below market expectations post-market the previous day, buoyed by forecasts of improved performance due to inventory reductions. This optimism about a semiconductor industry recovery is also lifting shares of Nvidia (+2.21%), Qualcomm (+2.60%), Intel (+3.77%), and AMD (+1.50%).
With concerns over the banking sector crisis easing, bank stocks are also on the rise. First Republic Bank, identified as the "second Silicon Valley Bank (SVB)," is trading about 4% higher. The SPDR S&P Regional Banking ETF is up nearly 1%. Bank of America (BoA), Citigroup, and Morgan Stanley are also trading more than 1% higher.
Meanwhile, UBS Group jumped over 4% following news that it rehired former CEO Sergio Ermotti ahead of its acquisition of Credit Suisse (CS). Ermotti, who led UBS from 2011 to 2020, is regarded as a crisis management expert, having successfully executed rigorous restructuring efforts in the past. Additionally, Lululemon surged about 15% after releasing optimistic earnings guidance for the year. Citigroup upgraded its investment rating on Lululemon.
Economic media outlet CNBC reported that "investors are betting that the worst of the banking crisis is over and are expecting a stock price recovery." Ed Yardeni, head of Yardeni Research, said that due to the recent SVB incident lowering stock prices, "it is a good time to invest in oversold sectors." The previous day's announcement of a major restructuring by Alibaba Group, China's largest e-commerce company, also helped boost investor sentiment. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," is trading around 19, down about 4% from the previous close.
Investors are closely watching Treasury yields while seeking clues about the Federal Reserve's (Fed) interest rate path from key events remaining this week. Although concerns over the banking crisis have eased, major economic events such as the House Financial Services Committee hearing and the release of economic indicators including the Personal Consumption Expenditures (PCE) price index remain, keeping market caution intact.
Michael Barr, Fed Vice Chair for Supervision, will testify before the House following his appearance at the Senate Banking Committee hearing the previous day regarding the SVB collapse. He previously cited management failures as the cause of SVB's failure and stated that "strengthening capital and liquidity regulations will be considered."
This week, key economic data including the Fed's preferred inflation gauge, the February PCE price index, and the finalized U.S. Q4 GDP growth rate will be released. The PCE price index is expected to rise 4.7% year-over-year and 0.4% month-over-month. Speeches by Fed officials such as Governors Lisa Cook and Christopher Waller, New York Fed President John Williams, Boston Fed President Susan Collins, and Richmond Fed President Thomas Barkin are also scheduled.
According to CME's FedWatch tool, as of this afternoon, federal funds futures market prices imply over a 60% chance that the Fed will hold rates steady at the May FOMC meeting. The probability of a 0.25 percentage point rate hike (a "baby step") stands at 39.9%. Futures markets are also pricing in the possibility that the Fed will begin cutting rates in July or September. Chris Senyek of Wolfe Research commented, "The Fed remains in a difficult position. Inflation is still high, the labor market is strong, and the Fed needs to regain credibility." He added, "Fed Chair Jerome Powell does not like to surprise the market," supporting a baby step hike in May.
Treasury yields continued to rise in the New York bond market today. The 2-year Treasury yield, sensitive to monetary policy, is trading around 4.07%, while the 10-year yield is near 3.58%. Recently, Treasury yields have been climbing as concerns over the banking crisis have subsided.
BCA Research dismissed concerns that commercial real estate issues could trigger the next banking crisis. With remote work declining and occupancy rates rising, borrowers are currently able to repay debts, and losses are mostly on paper, meaning banks can maintain positions unless forced liquidations occur. BCA advised investors to monitor the commercial real estate market but stated, "There is no need to be alarmed yet."
European stock markets are also rising. The rally is particularly notable in bank stocks following the news of UBS rehiring former CEO Ermotti. Germany's DAX index is up 1.23%, while the UK's FTSE and France's CAC indices have gained 1.04% and 1.49%, respectively.
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