Wall Street is reeling over fears of contagion from banking crises

  • First Republic Bank dabbles in suspending dividends
  • SVB Financial seeks bankruptcy protection
  • FedEx jumps at an increase in its full-year earnings forecast
  • Indexes down: Dow 1.31%, S&P 1.17%, Nasdaq 0.80%

NEW YORK, March 17 (Reuters) – Wall Street swung lower on Friday at the end of a tumultuous week marked by the unfolding crisis in the banking sector and the gathering storm clouds of possible recession.

All three indexes were sharply lower in afternoon trade, with financial stocks ( .SPNY ) falling the most among the largest sectors in the S&P 500.

For the week, while the benchmark S&P 500 is on track to end higher than last Friday’s close, the Nasdaq and Dow have been headed lower.

SVB Financial Group ( SIVB.O ) announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of SVB and Signature Bank ( SBNY.O ), sparking fears of contagion anywhere in the world banking system.

“It feels like it’s been a month since Monday,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta, who added, “There’s always going to be a concern based on past experience that any time a financial institution is in trouble, is it systemic.”

“I don’t think there is a systemic problem in the sector,” he said. “The banks just haven’t kept up with the interest they have to offer to attract and maintain deposits.”

Over the past two weeks, the S&P Banking Index (.SPXBK) and the KBW Regional Banking Index (.KRX) have both fallen about 21%, their biggest two-week declines since March 2020, when the COVID-19 pandemic pushed the economy into its steepest and most sudden recession ever.

The day after surging on news of an unprecedented $30 billion bailout by major financial institutions, First Republic Bank ( FRC.N ) fell 26.0% after the bank announced it was suspending its dividend.

Among First Republic peers, PacWest Bancorp ( PACW.O ) fell 14.8%, while Western Alliance ( WAL.N ) shed 13.0%.

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

In light of recent developments in the banking sector and data suggesting a softening of the economy, investors have adjusted their expectations about the size and duration of the Fed’s restrictive interest rate hikes.

At last glance, financial markets have priced in a 70.1% probability that the central bank will raise its main target rate by 25 basis points and a 29.9% probability that it will leave the current rate unchanged, according to CME’s FedWatch tool.

The Dow Jones Industrial Average (.DJI) fell 423.76 points, or 1.31%, to 31,822.79, the S&P 500 (.SPX) lost 46.21 points, or 1.17%, to 3,914.07 and the Nasdaq Composite fell 6.99IC. 0.8% to 11,624.12.

All 11 major sectors in the S&P 500 were in negative territory last time, with technology stocks (.SPLRCT) flirting with pinball green.

On the positive side, FedEx Corp ( FDX.N ) rose 8.1% after raising its current fiscal year forecast.

Declining issues outnumbered advancing ones on the NYSE by a ratio of 4.55 to 1; on the Nasdaq, a 3.14 to 1 ratio favored decliners.

S&P 500 posted 5 new 52-week highs and 19 new lows; The Nasdaq Composite recorded 24 new highs and 242 new lows.

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

Our standards: Thomson Reuters Trust Principles.

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