A pedestrian walks past the First Republic Bank headquarters March 13, 2023 in San Francisco, California.
Justin Sullivan | News from Getty Images | Getty Images
This report is from today’s CNBC Daily Open, our new newsletter for international markets. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Do you like what you see? Here you can sign up.
The bankruptcies continue.
- Investors beware – although financial regulators made sure depositors at SVB and Signature Bank could withdraw their money, President Joe Biden didn’t have much sympathy for the banks’ investors. “Investors in the bank will not be protected,” Biden said in a White House speech. “That’s how capitalism works.”
- The yield on the 2-year government bond fell to 4.016%. On Wednesday it was 5.06%. That’s a full percentage point drop, the biggest three-day drop since “Black Monday” in 1987, when the S&P 500 plummeted 20%. Investors are flocking to bonds, pushing yields lower as they seek safer assets amid contagion across the banking sector.
- PROFESSIONAL Why was SVB the first bank (other than Silvergate, a crypto-focused bank) to fail due to higher interest rates? This chart shows the bank’s unique asset dispersion and how it has prepared for failure.
A joint guarantee from the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation was not enough to stop the bankruptcies.
Regional banks have been hit by the second and third largest bank failures in US history. The biggest losers: First Republic Bank plunged 61.83%, Western Alliance Bancorp 57.06%, and KeyCorp 27.33%. Trading was so volatile that many bank stocks had to be halted during the day. Bigger banks were not left unscathed. Bank of America plunged 5.81% and Charles Schwab fell 11.57%, although the Schwab tried to calm fears by saying he had “access to significant liquidity.”
The Dow Jones Industrial Average lost 0.28%, its fifth straight day down, and the S&P 500 fell 0.15%. But those are minor declines compared to the hits the banking sector has taken, suggesting the broader economy is still in good shape. Indeed, the Nasdaq Composite bucked the trend, rising 0.45%. Take the pharmaceutical industry, which has risen on news that Pfizer is acquiring Seagen, a developer of cancer treatments, for $43 billion. Seagen is up 15%, while Pfizer is up 1.5%. Pharmaceutical companies not involved in the deal, such as Moderna, Johnson & Johnson or Eli Lilly, also benefited from this sign of life outside of the banking sector.
And now for the bad news. Despite the turmoil in the banks, markets and analysts expect the Fed to hike rates. If the Fed pauses, it would “invite markets and the public to assume that the Fed’s resolve to fight inflation extends only to the point where there are bumps in financial markets or the real economy,” Citigroup said. Economist Andrew Hollenhorst. (Goldman Sachs’ prediction that the Fed would hold its hand is, as I mentioned yesterday, a rare exception.)
A better indicator of how interest rates are moving would be the consumer price index, which is released throughout the day. At the moment the crisis in the banking sector seems to be contained – hopefully.
Subscribe to Here to get this report straight to your inbox every morning before the market opens.
Comments are closed.