Wall Street ends sharply lower on fears of banking contagion

  • First Republic Bank Collapses Over Dividend Suspension
  • SVB Financial seeks bankruptcy protection
  • FedEx jumps with full-year profit forecast boost
  • Indexes down: Dow 1.19%, S&P 1.10%, Nasdaq 0.74%

NEW YORK, March 17 (Reuters) – Wall Street closed lower on Friday, marking the end of a tumultuous week dominated by an unfolding banking crisis and gathering storm clouds of a possible recession.

All three indexes ended the session deep in negative territory, with financial stocks ( .SPNY ) falling the most among the S&P 500’s major sectors.

For the week, while the benchmark S&P 500 ended higher than last Friday’s close, the Nasdaq and Dow posted weekly declines.

SVB Financial Group ( SIVB.O ) said it will seek Chapter 11 bankruptcy protection, the latest development in the ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank ( SBNY.O ) that raised fears from contagion everywhere the world banking system.

“(The sell-off) is a bit of an overreaction,” said Oliver Pourche, senior vice president at Wealthspire Advisors in New York. “However, there are grounds for some of the concerns about overall liquidity and a potential liquidity crisis.”

Those concerns spilled over into Europe as Credit Suisse ( CSGN.S ) shares stumbled on liquidity concerns, prompting policymakers to scramble to calm markets.

“It goes much further than just launching SVB or First Republic, it gets to the real impact that these rate hikes have on capital and balance sheets,” Purchet added. “And you’re seeing that impact large institutions like Credit Suisse, and it’s shaken people up.”

Over the past two weeks, the S&P Banking Index (.SPXBK) and the KBW Regional Banking Index (.KRX) have tumbled 4.6% and 5.4%, respectively, their biggest two-week declines since March 2020.

First Republic Bank ( FRC.N ) tumbled 32.8% after the bank announced it was suspending its dividend, reversing Thursday’s jump that was sparked by an unprecedented $30 billion bailout from major financial institutions

Among First Republic peers, PacWest Bancorp ( PACW.O ) fell 19.0%, while Western Alliance ( WAL.N ) shed 15.1%.

US-traded Credit Suisse shares also closed sharply lower, down 6.9%.

Investors are now turning their eyes to the Federal Reserve’s two-day monetary policy meeting next week.

In view of recent developments in the banking sector and data suggesting a softening economy, investors adjusted their expectations regarding the size and duration of restrictive interest rate hikes by the Fed.

“This little banking crisis has increased the chances of a recession and hastened the timetable for the economy to slow down,” Purchet said. “It is natural for the Federal Reserve to review its course of action, but it is still very clear that while inflation is slowing, it is still very concerning and needs to be brought under control.”

At last glance, financial markets pegged a 60.5% chance the central bank would raise its key interest rate target by 25 basis points and a 39.5% chance it would leave the current rate unchanged, according to CME’s FedWatch tool.

The Dow Jones Industrial Average (.DJI) fell 384.57 points, or 1.19%, to 31,861.98, the S&P 500 (.SPX) lost 43.64 points, or 1.10%, to 3,916.64, and the Nasdaq Composite (.IXIC) fell 86.76 points, or 0.74%, to 11,630.51.

All 11 major S&P 500 sectors ended the session in negative territory.

On the upside, FedEx Corp ( FDX.N ) jumped 8.0% after raising its forecast for the current fiscal year.

Declining issues outnumber rising ones on the NYSE by a ratio of 4.07 to 1; on the Nasdaq, a ratio of 2.94 to 1 favored the decliners.

S&P 500 posts 5 new 52-week highs and 20 new lows; The Nasdaq Composite recorded 29 new highs and 320 new lows.

Volume on US exchanges was 19.41 billion shares, compared to an average of 12.49 billion over the past 20 trading days.

Reporting by Stephen Culp in New York Additional reporting by Shubam Batra and Amruta Khandekar in Bengaluru Editing by Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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