stock rally after bank bailout; Jump in Yields: Markets Wrap

(Bloomberg) – U.S. stocks ended the day higher after a First Republic Bank bailout was secured, sparking a rebound in shares from embattled regional lenders. Treasury bonds fell after the European Central Bank announced a rate hike, adding to bets that the US Federal Reserve will also hike next week.

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The S&P 500 posted its biggest one-day gain since January after the largest banks in the US agreed to donate $30 billion in deposits to First Republic. Shares in the regional lender were down more than 60% before Thursday as investors speculated the bank could be next to fail after two high-profile exits sparked the crisis last week. An index of regional banks closed higher, the gauge is still down over 20% this March. The tech-heavy Nasdaq rose 2.7% to a one-month high.

Tech has become more interest rate sensitive, said Tony Welch, chief investment officer at SignatureFD.

“When economic growth becomes scarcer, you should look to the industries and sectors that can generate the growth. Tech is certainly one of those who can potentially be a better breeder,” Welch said.

Meanwhile, Treasury Secretary Janet Yellen’s prepared remarks, presented Thursday on Capitol Hill, “did a good job of boosting confidence in the banking system,” said Art Hogan, chief markets strategist at B. Riley Wealth Management.

“They want support to come from the private sector, and now that’s probably going to be the first of many bigger, more solid banks that are going to support some of the banks that may have balance sheets that are impacted,” Hogan said of the big lenders coming to the regional bank Help.

The story goes on

The First Republic news comes after a lifeline from Swiss regulators stabilized Credit Suisse Group AG overnight and eased fears that the European lender could lead to a cascading crisis in that region. The idea of ​​a forced combination with a larger competitor, UBS Group AG, was dismissed on Thursday and Credit Suisse earnings ended the session unchanged. The cost of insuring the Swiss bank’s debt has increased.

“That the market is reacting relatively positively to the fact that we’re applying some guard rails here shouldn’t necessarily be a catalyst for markets to move much higher,” said Meera Pandit, global markets strategist for JPMorgan Asset Management at Bloomberg TV. “There is still a certain vulnerability to a correction here because we don’t know how this will develop further.”

Markets also digested a rate hike by the European Central Bank and comments from the ECB President that inflation was likely to remain too high for too long. The US Federal Reserve is expected to hike interest rates by a quarter of a point next week. Rising odds for the move pushed two-year Treasury yields back above 4%, although they remained lower than a week ago.

Treasury bonds fluctuated during the session with yields eventually rising. A measure of Treasury market volatility reached levels last seen amid the global financial crisis this week.

FedEx Corp. shares higher in after-hours trading after the delivery company’s earnings beat estimates and an upgraded outlook for the year. United Parcel Service Inc. also rose.

The quarterly triple witching, in which index futures, stock index options and stock options contracts all expire, could add to volatility in Friday’s trading.

All eyes are now on next week’s Federal Reserve monetary policy meeting, where traders will debate whether the central bank will hike interest rates. Market prices suggest that the Fed will soon turn around and start cutting rates this year.

Data on Thursday showed that initial jobless claims fell more than analysts had estimated last week, while housing starts and building permits beat expectations, underscoring the economic resilience that has enabled the Fed to tighten aggressively over the past year .

“Central banks appear poised to overcome the problems that raise interest rates are causing to address inflation,” wrote Louis Navellier, Navellier & Associates’ chief investment officer, in its daily newsletter. He sees the ECB’s rate hike as a “test run” ahead of the next Fed meeting.

“All else being equal, more restrictive lending increases recession risk,” he said. “Expect a lot of volatility in the near term and remain cautious as this banking crisis plays out.”

Shares

• The S&P 500 was up 1.8% as of 4 p.m. New York time

• The Nasdaq 100 rose 2.7%

• The Dow Jones Industrial Average rose 1.2%

• MSCI World Index up 1.3%

currencies

• The Bloomberg Dollar Spot Index fell 0.3%

• The euro rose 0.3% to $1.0614

• The British pound rose 0.5% to $1.2118

• The Japanese yen was little changed at 133.47 per dollar

cryptocurrencies

• Bitcoin surged 2.5% to $25,003.38

• Ether was up 1.8% to $1,683.68

Bind

• The 10-year government bond yield rose 11 basis points to 3.57%

• The 10-year German government bond yield rose 16 basis points to 2.29%

• The 10-year UK government bond yield rose 10 basis points to 3.43%

raw materials

• West Texas Intermediate crude was up 0.7% to $68.09 a barrel

• Gold futures fell 0.4% to $1,924.40 an ounce

This story was created with the support of Bloomberg Automation.

–Assisted by Emily Graffeo and Isabelle Lee.

(An earlier version of this story has been corrected to show that Credit Suisse is attempting to buy back debt.)

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