Dow Jones closes in positive territory
Optimism in the banking sector drives US stock markets
03/21/2023 9:49 p.m
US investors are initially putting their worries about the banking system behind them after the emergency takeover of Swiss Credit Suisse. With the reports on measures to stabilize the banking sector, the interest rate decision in the middle of the week is now becoming more of a focus.
With the easing of concerns about a banking and financial crisis, things have gone up significantly on Wall Street. After the solution for the systemically important Credit Suisse, which had gotten into trouble, there were also indications that the small regional institute First Republic Bank in the USA would be rescued. The course jumped 29.5 percent, it had recently crashed after difficulties at the bank and had lost 47 percent the day before. The course was fueled by reports that JP Morgan is working to support the bank – it is about strategic alternatives such as a capital increase or a sale.
The Dow Jones index gained 1.0 percent to 32,561 points. The S&P 500 climbed 1.3 percent and the Nasdaq Composite rose 1.6 percent. The 2,441 (Monday: 1,858) price winners on the Nyse faced 627 (1,190) losers. 67 (92) shares closed unchanged. The banking sector in the S&P 500 rose 3.6 percent. In the Dow, JP Morgan (+2.7%) and Goldman Sachs (+2.5%) made strong gains. The US Treasury Department is also said to be considering unlimited deposit guarantees in general – other sources only spoke of a significant increase in guarantees.
US Treasury Secretary Janet Yellen said the government could step in to protect other banks’ deposits if regulators see a risk of a run on the banking system. In any case, the reports are supportive of the stock market. “The stock market is not pricing in a full-scale banking crisis,” said market strategist Seema Shah of Principal Asset Management.
US Federal Reserve interest rate decision in focus
With the reports on measures to stabilize the banking sector, the interest rate decision in the middle of the week became more of a focus. “Our own US economists (…) agree with the assessment that the Fed will opt for 25 basis points,” said market strategist Jim Reid of Deutsche Bank. Market expectations are also assuming an interest rate hike of 25 basis points, which means that market assessments have dropped from previously higher forecasts in view of the turmoil in the banking sector.
Safe havens were not in demand with the increased willingness to take risks thanks to the easing in the banking sector. The sell-off in bonds continued. The 10-year yield rose another 11.4 basis points to 3.60 percent. The dollar also fell further after a slight recovery in the meantime. The dollar index fell 0.1 percent.
The main focus here was the interest rate decision by the US Federal Reserve on Wednesday evening. Interest rate expectations had recently come down significantly. “Should the Fed completely forego an increase, the stock market traders could see it more as a warning signal of a much deeper banking crisis. That’s why I suspect that the Fed will do business as usual with a further increase,” says strategist Thomas Altmann by QC Partners.
Gold price drops significantly
The euro, on the other hand, rose as a result of the increased appetite for risk. In retail, reference was made to the easing in the banking sector. The shared currency advanced to $1.0770 after a daily low of 1.0704. At the daily high of $ 1.0789, the currency had marked its highest level in five weeks. The price of gold fell significantly as investors became more willing to take risks. The price of a troy ounce fell 1.9 percent to $1,940. The day before, the precious metal had climbed to its highest level since April 2022 with a daily high of $ 2,015.
With the easing in the banking sector, another financial crisis with falling demand was priced out on the oil market. By the end of the week, this concern had pushed US WTI light oil down to a 15-month low. Brent and WTI were up as much as 2.7 percent.
Exagen fell 2.1 percent. The diagnostics company slipped deeper into the red in the fourth quarter. The fact that Exagen, despite the disappointing performance, raised its outlook for the first quarter and is now more optimistic than the analysts, fizzles out. Stanley Black & Decker was up 1.3 percent after the toolmaker announced it would be closing some manufacturing facilities. More than 300 employees are expected to be affected by the savings.