Dow Jones loses 0.9 percent
Fear of banking crisis puts pressure on stock markets
05/04/2023 11:02 p.m
Persistent difficulties and price slumps in the US banking sector spoil investors’ appetite for stocks. Double-digit price falls from several regional banks ensure that the leading US index Dow Jones Industrial continues its recent weakness.
Renewed concerns that the banking crisis in the US would spread have caused Wall Street to levy taxes. Two other regional banks are looking for alternatives for their business. This fueled concerns that the banking crisis is not over yet, a market observer said. The banking index in the S&P 500 was the daily loser with a minus of 2.7 percent. However, the US Federal Reserve’s interest rate decision, which was announced the previous evening, continued to be in the spotlight.
The Dow Jones index fell by 0.9 percent to 32,128 points. The S&P 500 was down 0.7 percent. The Nasdaq Composite was down 0.5 percent. There were 869 (Wednesday: 1,130) price winners and 2,108 (1,841) losers. 88 (124) titles closed unchanged.
As expected, the Fed raised its key interest rate by a further 25 basis points on Wednesday and also signaled that it might pause in its interest rate hikes in order to monitor the effects of the tightening of monetary policy so far. However, a decision on an interest rate pause is not expected to be made until the June meeting. In Europe, the European Central Bank (ECB) followed the US Federal Reserve and also hiked interest rates by 25 basis points. It has also announced further interest rate hikes. This was also widely expected in the market. “The Federal Reserve is in a bind. If this had happened before Covid and inflation wasn’t a problem, the Fed would be talking about cutting rates or slowing quantitative tightening (QT) or ending it. But now they have an inflation problem that they’re dealing with have to deal with,” said Michael Lebowitz, portfolio manager at RIA Advisors.
On the economic side, the number of initial jobless claims in the US rose somewhat more than economists had expected. Meanwhile, the US trade deficit fell significantly in March. And non-farm productivity fell slightly more than forecast in the first quarter compared to the previous quarter. As the US Department of Labor also announced, unit labor costs rose by 6.3 percent in the reporting period. Economists had expected an increase of 5.5 percent.
PacWest Bancorp and Western Alliance Bancorp under pressure
The shares of the two US regional banks PacWest Bancorp (-50.6%) and Western Alliance Bancorp (-23.6%) were clearly under selling pressure. PacWest Bancorp’s shares were weighed down by concerns about a possible trouble. Management is reportedly evaluating alternatives and considering a potential sale. Meanwhile, PacWest, which like other regional banks has been under pressure since the collapse of Silicon Valley Bank, said the bank’s deposits have recently risen. Discussions were also held with partners and investors.
The same applies to Western Alliance Bancorp. The Financial Times reported that the bank is considering strategic alternatives for its business. The price decline occurred despite the Bank’s announcement about the growth of deposits and the increase in the share of insured deposits. JP Morgan shares fell 1.4 percent and Bank of America fell 3.1 percent.
Qualcomm weak by the numbers
Qualcomm fell 5.5 percent. The chip manufacturer met market expectations with the results for the second business quarter, but was disappointed with the outlook for the current third quarter. AMD (+6.1%) and Microsoft (+0.3%) shares were sought. According to a Bloomberg report, AMD is collaborating with Microsoft to develop artificial intelligence processors. Although the oil company Conocophillips (+1.3%) earned less in the first quarter of 2023 than in the same period of the previous year due to falling oil prices, it still exceeded analysts’ expectations.
Arconic jumped 28.3 percent to $28.93. Private equity firm Apollo Global Management is said to be on the verge of acquiring the aerospace company. According to people familiar with the matter, Arconic is valued in the transaction at $30 per share, or approximately $3 billion.
Dollar little changed – yields recovered slightly
The dollar stabilized after the recent drop. The euro fell 0.4 percent to $1.1014 after the ECB hiked interest rates. The US monetary authorities did what was generally assumed to be the most likely scenario; Although they had raised the key interest rate again, they had removed any reference to a further interest rate hike, according to Commerzbank analyst Ulrich Leuchtmann. The more important question is whether the key interest rate will remain higher for a long time or will fall again soon. Fed Chairman Jerome Powell said little new about this, which is why the immediate reaction of the dollar exchange rates was rather muted. In the US bond market, yields recovered slightly from recent losses.
Only at the short end of the market did yields continue to fall. The day before they had come back significantly with the prospect of a rate hike pause by the Fed. Oil prices have changed little after the recent significant levies. Most recently, prices had fallen due to ongoing recession and demand concerns and slipped to their lowest level since the end of 2021. Gold prices continued to rise on the prospect of a US Federal Reserve rate pause. The precious metal continued to move away from the $2,000 a troy ounce mark.