Stocks edged higher in a volatile session on Monday, as cautious investors welcomed moves to shore up the global financial system after the collapse of four banks that caused financial turmoil. turmoil in financial markets this month.
The S&P 500 gained 0.9%, with every sector of the index ending the day. Monday’s bounce came a day after Swiss authorities arranged a hasty takeover of the nation’s troubled lender, Credit Suisse, by its rival, UBS. Major central banks also moved on Sunday to make it easier to provide dollar capital, and federal regulators announced the acquisition of parts of the collapsed Signature Bank in New York .
Those efforts have provided some relief to nervous investors, even as they note that more uncertainty could loom. Analysts have been concerned about the potential ripple effect on the economy that could come as banks pull back on lending to protect themselves from any further consequences from the collapse of the bank. Silicon Valley Bank.
Monday’s cautious tone also came a day before Federal Reserve Start an important meeting. The Fed has raised interest rates to rein in stubbornly higher inflation, but volatility in the banking sector has led to a complete re-evaluation of what the central bank will do next as investors. Worry about policymakers continuing to screw up the economy has shown signs of strain.
Traders are divided over whether the central bank will raise interest rates when they announce their decision on Wednesday, a sharp change from just a few weeks ago, when many markets expected the Fed to raise interest rate. increased the rate by half a percentage point in response to hotter-than-expected inflation data.
Economists at Goldman Sachs said on Monday that they expected the Fed to stop raising rates this week “because of stress in the banking system.”
That tension is also evident in the shares of some small banks. Remarkable, Bank of the First Republic, the target of a rescue effort by larger rivals that pumped billions of dollars in deposits into lenders last week, fell nearly 50% on Monday. Its shares have fallen 90% this month, wiping out tens of billions of dollars in market value and putting its future as an independent bank in doubt. First Republic’s credit rating was downgraded by S&P Global on Sunday for the second time in less than a week.
Another relatively small lender, Western Alliance, also fell. Its shares fell 6.7% after starting the day with gains.
In Zurich, Credit Suisse’s share price fell more than 50% following the deal with UBS, which was agreed at a large discount to Credit Suisse’s market value on Friday. Shares of UBS rose more than 3%.
Some US banks have wobbled after the collapse of Silicon Valley Bank And signature bank better on Monday. Shares of PacWest rose, as did Comerica and Zions Bank.
However, even as volatile trading conditions in financial markets appear to have eased, some investors are still feeling the impact of the recent drop.
One strategy that has been particularly hard hit by the recent turmoil is the Commodity Trading Advisor Strategy. This strategy is used by some of the largest mutual funds in the world and follows the momentum of the market, buying when prices rise and selling when prices fall. This makes these funds vulnerable to sudden changes that could catch them off guard. The index of the 20 largest CTA managers run by Société Générale has fallen nearly 9% since the sell-off began.
In debt markets, the Credit Suisse deal causes insecurity that some investors fear may linger because it overturns the usual hierarchy in which investors get their capital back when a company downfall. Investors who own shares of a company are often last in line to be paid when a company is written off. But in this case, Credit Suisse stockholders receive one UBS share for every 22.48 shares they own, according to the terms of the agreement.
In contrast, a particularly risky form of bank debt, known as AT1 bonds, was written off. On Monday, banking regulators and supervisors in the European Union, of which Switzerland is not a member, issue a statement reiterates that in their jurisdiction, shareholders suffer losses at the banks before bondholders. Prices of other European AT1 bank bonds fell on Monday.
“I think it’s wrong to mess with AT1,” said Peter Tchir, head of macro strategy at Academy Securities. “They have made people question this market.”
Jason Karaian And Kevin Granville contribution report.
