2023-05-02 20:01:04
The New York Stock Exchange turned red on Tuesday on the eve of a monetary decision by the Fed as regional banks are once again in the sights of the markets, which seem to be looking for the next weak link.
The Dow Jones index and the Nasdaq fell 1.08% to 33,684.53 points and 12,080.51 points while the broader S&P 500 index lost 1.16% to 4,119.58 points.
The banking sector (-2.39%) led the broader index lower with that of energy (-4.28%) which plunged in the wake of the drop in oil prices.
The solution found the day before by the authorities to have the First Republic bank – on the verge of bankruptcy – bought out by JPMorgan, the country’s leading bank, did not seem to convince the markets of the end of the banking turbulence.
Regional banks have been the target of downside bets. PacWest Bancorp and Western Alliance, both suspended from trading several times during the session for volatility, lost 27.78% and 15.12% respectively.
The heavyweights of the sector were also all sanctioned, from JPMorgan which lost 1.61% to Goldman Sachs (-2.11%) via Wells Fargo (-3.84%) and Bank of America (-3, 03%).
“The fear was back for the banking industry,” commented Adam Sarhan of 50 Park Investments. “Fear is a very powerful feeling on Wall Street. When it comes in the door, logic goes out the window,” he added.
The prospect of another interest rate hike by the Federal Reserve on Wednesday was also increasing pressure on banks, several analysts said.
The market talks to the Fed
“The Fed needs to view ‘these banking difficulties’ as a game-changing event,” argued LBBW’s Karl Haeling and no longer view banks as bearing the brunt of ‘isolated cases of mismanagement’.
The severe rate hike by the Federal Reserve over the past year, which dictates the level of all other credits and returns, has indeed changed the management profile of the banks.
“The market is putting pressure on the Fed to lower rates,” added Adam Sarhan.
The central bank must in any case, for Karl Haeling, avoid “strict” language after its very likely last rate hike on Wednesday and must suggest that a pause is to be expected. Especially since the tightening of credit conditions will slow the economy.
These fears of recession and a plunge in demand were reflected in the fall in oil prices, which fell by more than 5%. The giants Exxon Mobil and Chevron dropped 3.99% and 4.31% respectively.
Reflecting this anxiety about a future slowdown, bond rates, which move in the opposite direction to the price of Treasury bills, fell to 3.98% against 4.14% the day before for two-year bonds.
In the middle of the session, the VIX index, known as “of fear”, which measures market volatility, jumped 22% before stabilizing a little at +10% at the close.
A safe haven, gold rose above 2,000 dollars an ounce (+1.75% to 2,027 dollars) while the greenback lost momentum against the euro (-0.25%) which in turn awaits an ECB meeting on Thursday in a context of stubborn inflation.
In addition, Uber pulled out of the game jumping 11.64% after announcing results and forecasts exceeding expectations thanks to strong demand for its services.
The total amount of bookings made from the chauffeur-driven car rental app soared 19% in the first quarter. Uber cut its operating loss by nearly half.
Chegg, a successful education platform during the pandemic, tumbled 48.52% to $9 as the company lamented competition from artificial intelligence program ChatGPT, with students turning to OpenAI’s tool to do their homework.
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