NEW YORK (`) — Stocks rose Monday on Wall Street after regulators brought together two giant banks over the weekend and took other steps to build confidence in the struggling industry.
The S&P 500 rose 34.93 points, or 0.9%, to 3,951.57. The Dow Jones Industrial Average was up 382.60, or 1.2%, to 32,244.58 and the Nasdaq Composite was up 45.02, or 0.4%, to 11,675.54.
Much attention has been paid to the banks for their potential collapse under the pressure of much higher interest rates. Swiss banking giant UBS said on Sunday it would buy its ailing rival Credit Suisse for nearly $3.25 billion in a deal quickly put together by regulators. Credit Suisse has struggled with unique problems for years, but they came to a head last week when the share price fell to an all-time low.
A group of central banks stretching from the United States to Japan also announced coordinated steps on Sunday to ease tensions in the financial system. They should allow banks more access to US dollars if needed, following a practice widely used in previous crises.
The moves don’t mean the banking industry crisis is over, but “they took one of the problematic aspects off the table,” said Ryan Detrick, chief market strategist at Carson Group.
Regulators’ announcements late Sunday may be reminiscent of the 2007-08 financial crisis that devastated the global economy, but many investors see big differences between then and now.
“The market is trying to digest: is this just a bunch of bad financial companies that really made some bad decisions, or is it a house of cards?” Detrick said. “We are optimistic that there are several banks in a bad situation, but not the entire system.”
In the US, most attention has been focused on smaller and mid-sized banks amid concerns that falling confidence could prompt their depositors to withdraw their money at once. It’s called a bank run, and such a move could bring her down.
First Republic Bank has been at the center of investors’ crosshairs as they hunt for the industry’s next victim after the second- and third-largest US bank collapses in history. Its shares fell 47.1% after S&P Global Ratings downgraded its credit rating for the second time since Wednesday.
S&P said it could lower the rating even further, although a group of the largest US banks announced last week that they would pledge $30 billion in a show of confidence in First Republic and the larger banking industry.
While that money certainly helps, “it may not solve the significant business, liquidity, funding and profitability challenges that we believe the bank is now likely to face,” the rating agency said.
Conversely, shares of other smaller and mid-sized banks were much stronger.
New York Community Bancorp rose 31.7% after agreeing to buy a majority of Signature Bank in a $2.7 billion deal, Federal Deposit Insurance Corp said. late Sunday with. Signature Bank became the industry’s third-biggest failure earlier this month after regulators seized it.
Much of the rest of the US stock market also rose, but how long that will last is a question mark. There is a big decision coming up on the Federal Reserve calendar.
The US Federal Reserve will announce its latest rate hike on Wednesday. For a while, Wall Street bet that it would accelerate its gains again because of stubbornly high inflation.
Higher interest rates can undercut inflation by slowing the economy, but they increase the risk of a recession later. They also hurt the prices of stocks and other investments. That was one of the factors hurting Silicon Valley Bank, which earlier this month became the second-biggest U.S. bankruptcy in history. Bonds owned by it and other banks have fallen in value as interest rates have risen sharply.
The Fed has already raised its key federal funds rate to a range of 4.50% to 4.75% from virtually zero at the start of last year.
But all the recent tensions in the banking system have led Wall Street to believe that the Fed is unlikely to pick up the pace on its rate hikes.
Given all the recent rate hikes, many economists and investors were already expecting at least a mild recession to hit the US economy. The concern is that strains on regional banks could increase risk. That’s because of how important such banks are in lending to small and medium-sized businesses to grow.
Sharp recalibrations by investors on Fed interest rates have led to historic swings in the bond market. Yields there have plummeted since the beginning of this month.
Consider the 2-year Treasuries, which tend to closely match expectations for the Fed. Its yield was above 5% earlier this month, its highest level since 2007, after inflation data and other economic indicators continued to come in higher than expected.
Last week it plunged well below 4% which is a massive move for the bond market. It rose to 3.97% from 3.84% late Friday.
On the overseas markets, stocks rose in Europe after falling across much of Asia.
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` business writer Joe McDonald contributed.
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