A fresh selloff in regional banks kept Wall Street traders on their toes, with stocks finding little encouragement to rebound from recent losses amid few signs the drama is over.
(Bloomberg) — A fresh selloff in regional banks kept Wall Street traders on their toes, with stocks finding little encouragement to rebound from recent losses amid few signs the drama is over.
The 60% plunge in PacWest Bancorp that came just a few hours after an underwhelming Federal Reserve decision left investors even more skittish with regards to the health of the financial system. A US probe into Goldman Sachs Group Inc.’s role in Silicon Valley Bank’s deal also weighed on sentiment, with the S&P 500 heading toward its fourth straight down day. The drop in equities sent the Cboe Volatility Index (VIX) closer to the key 20 mark.
“The acute phase of bank turmoil may not be over, and policymakers need urgently to recognize that,” said Krishna Guha at Evercore. “The problem is that their financial stability policy options are limited.”
All 21 shares in the KBW Bank Index of financial heavyweights like JPMorgan Chase & Co. and Bank of America Corp. retreated. The $2.5 billion SPDR S&P Regional Banking exchange-traded fund was on pace for its lowers since October 2020, with PacWest down 49%, First Horizon Corp. slumping 39% and Western Alliance Bancorp hit with a 19% slide.
The recent collapse of First Republic Bank and a raging selloff in regional banks has raised concern about vulnerabilities in the banking industry and bolstered fears of a lending crunch that spurs a hard landing. For firms with shakier finances that often borrow money not only through banks but also with high-yield debt, signs of stress in the system may inflict even more pain.
“Companies with the highest level of leverage aren’t necessarily the most prudent ones, so if we see a pullback in bank lending, they become harder to underwrite,” said Max Gokhman, head of MosaiQ Investment Strategy at Franklin Templeton Investment Solutions. “Investors recognize that if rates go down, they may not necessarily go down for the most-indebted companies and they may have a hard time getting additional financing when they need it most.”
In the run-up to the jobs report, data showed applications for US unemployment benefits rose by the most in six weeks while continuing claims fell — flagging some softening in a labor market that remains relatively resilient. Even as the labor market starts showing some weakness, it’s still cooling at a much slower pace than other economic indicators in the wake of an aggressive tightening campaign by the Federal Reserve.
“In our view, the Fed is very unlikely to cut unless there’s severe financial stress and/or a recession is imminent — stocks likely go down in both scenarios,” said Chris Senyek at Wolfe Research.
Before the monthly payroll data, traders will be sifting through Apple Inc.’s quarterly earnings — due after the closing bell.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.6% as of 9:44 a.m. New York time
- The Nasdaq 100 fell 0.4%
- The Dow Jones Industrial Average fell 0.7%
- The Stoxx Europe 600 fell 0.7%
- The MSCI World index fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.4% to $1.1015
- The British pound was little changed at $1.2560
- The Japanese yen rose 0.2% to 134.40 per dollar
Cryptocurrencies
- Bitcoin rose 0.6% to $28,712.97
- Ether rose 0.4% to $1,881.51
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.36%
- Germany’s 10-year yield was little changed at 2.25%
- Britain’s 10-year yield advanced four basis points to 3.74%
Commodities
- West Texas Intermediate crude fell 0.5% to $68.28 a barrel
- Gold futures rose 0.5% to $2,048.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
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