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NEW YORK (Reuters) – Wall Street closed lower on Friday, marking the end of a turbulent week dominated by storm clouds that signaled an unfolding crisis and possible recession in the banking sector. .
Financials (.SPNY) fell the most among the S&P 500’s major sectors, with all three indices ending the session in negative territory.
The benchmark S&P 500 closed higher than last Friday’s close this week, while the Nasdaq and Dow posted weekly losses.
SVB Financial Group (SIVB.O) has announced that it will seek Chapter 11 bankruptcy protection. It’s the latest twist in the ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank (SBNY.O), sparking contagion fears throughout. global banking system.
“[The selling]is a bit of an overreaction,” said Oliver Persche, senior vice president at Wealthspire Advisors in New York. “However, some concerns about overall liquidity and a potential liquidity crunch are valid.”
Those concerns spread across Europe as the price of Credit Suisse (CSGN.S) stumbled on concerns about liquidity and policymakers scrambled to reassure markets.
“This is not just a game against the SVB or the First Republic, it extends to the actual impact of these rate hikes on capital and balance sheets,” added Paasche. “And we’re seeing it affect big financial institutions like Credit Suisse, and people are upset.”
Over the past two weeks, the S&P Bank Index (.SPXBK) and KBW Regional Bank Index (.KRX) plunged 4.6% and 5.4%, respectively, the biggest two-week decline since March 2020.
First Republic Bank (FRC.N) plunged 32.8% after it announced it would suspend its dividend, surging Thursday sparked by an unprecedented $30 billion bailout from big financial institutions overturned
Among First Republic’s peers, PakWest Bancorp (PACW.O) fell 19.0% and Western Alliance (WAL.N) fell 15.1%.
US-traded Credit Suisse shares also plunged, down 6.9%.
Investors now have their eyes on the Federal Reserve’s two-day monetary policy meeting next week.
Given recent developments in the banking sector and data suggesting a softening economy, investors are adjusting their expectations for the size and duration of the Fed’s restrictive rate hikes.
“This mini-banking crisis has increased the likelihood of a recession and accelerated the economic slowdown timeline,” Pursche said. “It is natural for the Fed to reconsider its course of action, but it is very clear that while inflation is slowing, it is still very much a concern and needs to be brought under control.”
According to the CME’s FedWatch tool, financial markets are pricing in a 60.5% chance that the central bank will raise its key rate target by 25 basis points, and a 39.5% chance that it will stay at current rates.
The Dow Jones Industrial Average (.DJI) fell 384.57 points (1.19%) to 31,861.98, the S&P 500 (.SPX) fell 43.64 points (1.10%) to 3,916.64, and the Nasdaq Composite (.IXIC) fell 86.76 points. 0.74% to 11,630.51.
All 11 major S&P 500 sectors closed in negative territory.
FedEx (FDX.N) rose 8.0% after raising its forecast for the current financial year.
Losers outnumber gainers on the New York Stock Exchange by a ratio of 4.07 to 1. Losers dominated on the Nasdaq with a ratio of 2.94 to 1.
The S&P 500 has made five 52-week highs and 20 new lows. The Nasdaq Composite posted 29 new highs and 320 new lows.
US exchanges traded 19.41 billion shares, compared to an average of 12.49 billion shares over the last 20 trading days.
Reporting by Stephen Culp, New York Additional reporting by Shubham Batra and Amruta Khandekar, Bengaluru Editing by Matthew Lewis
Our standards: Thomson Reuters Trust Principles.
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