Wall Street finished down on Friday, marking the conclusion of a turbulent week characterized by a growing crisis in the banking industry and building storm clouds for a probable economic disaster.
At the end of the session, all three indices were in deep negative territory, with financial stocks in the S&P 500 falling the most.
While the S&P 500 ended the week higher than last Friday’s close, the Nasdaq and the Dow reported weekly losses.
SVB Financial Group said it would file for Chapter 11 bankruptcy protection. This is the latest turn in a drama that started a week ago with the failure of Silicon Valley Bank and Signature Bank, which made people worry about a global banking crisis.
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Oliver Pursche, senior vice president of Wealthspire Advisors in New York, stated, “(The sell-off) is a bit of an overreaction.” Nonetheless, some of the fears regarding overall liquidity and a potential liquidity shortage are true.
As Credit Suisse shares fell because of worries about liquidity, these worries moved to Europe. This made regulators rush to calm the markets.
Pursche continued, “This is far more than just a run on SVB or First Republic; it speaks to the actual impact these interest rate hikes are having on capital and balance sheets.” “Now you can see it affecting huge institutions such as Credit Suisse, which is unsettling people.”
Both the S&P Banking index and the KBW Regional Banking index had their worst two-week drops since March 2020. The S&P Banking index fell 4.6% and the KBW Regional Banking index fell 5.2%.
First Republic Bank’s stock price dropped by 32.8% after the company said it would stop paying dividends. This canceled out Thursday’s rise, which was caused by a $30 billion rescue plan from global financial institutions.
PacWest Bancorp and Western Alliance, two of First Republic’s competitors, both declined by 19.0%.
Credit Suisse shares traded in the United States also closed considerably lower, down 6.9%.
Next week, investors will focus on the Federal Reserve’s two-day monetary policy meeting.
Investors have changed their minds about how big and long the Fed’s interest rate hikes will be because of recent events in the banking sector and statistics that show the economy is slowing down.
Pursche says that this small banking crisis has made a recession more likely and sped up the timetable for the economy to get worse.It’s normal for the Fed to rethink its plans, but it’s clear that even though inflation is going down, it’s still a big problem that needs to be brought under control.
According to CME’s FedWatch tool, the financial markets have priced in a 60.5% chance that the central bank would raise its key target rate by 25 basis points and a 39.5% chance that it would maintain the present rate.
The Dow Jones Industrial Average sank 384.57 points, or 1.19 percent, to 31,861.98, the S&P 500 dropped 43.64 points, or 1.10 percent, to 3,916.64, and the Nasdaq Composite plummeted 86.76 points, or 0.74 percent, to 11,630.51.
All eleven major S&P 500 sectors closed the session in negative territory. FedEx Corporation rose 8.0% after raising its current fiscal year outlook.
On the NYSE, declining issues outnumbered rising ones by a ratio of 4.07 to 1; on the Nasdaq, the ratio was 2.94 to 1.
The S&P 500 had five new 52-week highs and twenty new lows, while the Nasdaq Composite recorded thirty-nine new highs and three hundred and twenty new lows.
The volume on U.S. exchanges was 19.41 billion shares, compared to the 20-day average of 12.49 billion shares.