U.S. stocks moved mostly higher in cautious trading early Monday after UBS Group’s takeover of troubled Swiss lender Credit Suisse, as investors assess what bank woes mean for the Federal Reserve’s rate path.
What’s happening
- The Dow Jones Industrial Average DJIA, +1.10% rose 234 points, or 0.7%, to 32,096.
- The S&P 500 SPX, +0.80% rose 13 points, or 0.3%, to 3,930.
- The Nasdaq Composite COMP, +0.26% fell 34 points, or 0.3%, to 11,596.
The S&P 500 and Nasdaq Composite both gained ground last week despite the continued banking upheaval, while the Dow suffered a second straight weekly loss.
What’s driving markets
Investors hoping that the purchase by UBS UBS, +3.93% of its beleaguered Swiss peer Credit Suisse CS, -52.51% would resolve angst over the banking sector were still on tenterhooks.
“While last week’s inflation data came in relatively cool, the Fed has its hands full as it addresses the banking crisis on top of its inflation fight. Traders should expect volatility and zigzag trading to linger as they assess how the additional lasting impacts from the banking fallout will impact the market,” said Chris Larkin, managing director for trading at Morgan Stanley’s E-Trade, in emailed comments.
Investors fear that the Federal Reserve’s sharp hiking of interest rates over the past 12 months, as it looks to combat inflation still running at three times its 2% target, has caused severe difficulties for parts of the financial sector.
The Fed faces a dilemma at its policy meeting on Wednesday as it tries to balance its inflation fight against worries over the stability of the financial system. Fed-funds futures traders, who earlier this month had braced for a rate hike of 50 basis points, or half a percentage point, now see a 28.4% chance that policy makers leave rates unchanged on Wednesday and a 71.6% chance of a 25-basis-point, or quarter-point, increase.
“Unfortunately, the Fed is boxed in. While it needs to continue interest rate hikes to combat inflation, which remains stubbornly high, recent events might better be addressed with a pause,” said Lisa Shalett, chief investment officer and head of the global investment office at Morgan Stanley Wealth Management, in a Monday note.
“The stock market needs to correct to reflect heightened risks,” she wrote.
See: What’s at stake for stocks, bonds as Federal Reserve weighs bank chaos against inflation fight
Shares of First Republic Bank FRC, -14.60% saw renewed pressure, tumbling another 14% after the troubled bank had its credit rating slashed deeper into junk territory over the weekend. S&P Global Ratings said last week’s $30 billion rescue package doesn’t solve the bank’s “substantial liquidity and funding challenges.” First Republic shares have plunged nearly 85% in March.
But other regional banks were holding their own, with the S&P Regional Banking exchange-traded fund KRE, +4.43% up 3.6%. The ETF remains down around 28% for the month.
The dollar, which often rallies at times of global market anxiety, was softer versus major rivals, reflecting drops in short-term Treasury yields TMUBMUSD02Y, 3.915% as traders increase bets that the Fed will have to leave interest rates where they are after its Wednesday meeting. The ICE U.S. Dollar Index DXY, -0.34%, a measure of the currency against a basket of six major rivals, was off 0.3%.
Companies in focus
- Shares of New York Community Bancorp Inc. NYCB, +37.64% jumped 32.3% after the regional bank on Sunday said it had acquired about $38 billion in assets of the failed Signature Bank and was taking over all of its branches, prompting Wedbush to upgrade the stock to outperform from neutral.
- Foot Locker Inc. FL, -2.19% shares rose 1.1% after the sneaker and athletic-wear retailer reported fourth-quarter results that beat expectations but forecast a drop in sales.
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