Wall Street ends sharply lower on fears of bank contagion

NEW YORK, March 17 (Reuters) – Wall Street closed lower on Friday, marking the end of a turbulent week dominated by an unfolding banking crisis and the gathering storm clouds of a possible recession.

All three indexes ended the session deep in negative territory, with financial stocks (.SPNY) down the most among the major S&P 500 sectors.

For the week, while the benchmark S&P 500 ended higher than last Friday’s close, the Nasdaq and Dow posted weekly declines.

SVB Financial Group ( SIVB.O ) announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank ( SBNY.O ), sparking fears of contagion through the entire global banking system.

“(The sale) is a bit of an overreaction,” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “But there is validity to some of the concerns regarding overall liquidity and a potential liquidity crisis.”

Those worries have spread to Europe, as Credit Suisse ( CSGN.S ) shares stumbled on liquidity worries, prompting politicians to scramble to calm markets.

“This goes much further than just a run on SVB or First Republic, it goes to the real impact these rate hikes are having on capital and balance sheets,” Pursche added. “And you’re seeing it affect big institutions like Credit Suisse, and it’s got people rattled.”

Over the past two weeks, the S&P Banking Index (.SPXBK) and the KBW Regional Banking Index (.KRX) have plunged 4.6% and 5.4%, respectively, their biggest two-week declines since March 2020.

First Republic Bank ( FRC.N ) plunged 32.8% after the bank announced it was suspending its dividend, reversing Thursday’s surge sparked by an unprecedented $30 billion bailout from major financial institutions

Among First Republic’s peers, PacWest Bancorp ( PACW.O ) fell 19.0% while Western Alliance ( WAL.N ) shed 15.1%.

US-traded shares of Credit Suisse also closed sharply lower, down 6.9%.

Investors are now turning their eyes to the Federal Reserve’s two-day monetary policy meeting next week.

In light of recent developments in the banking sector and data suggesting a softening of the economy, investors have adjusted their expectations regarding the size and duration of the Fed’s restrictive rate hikes.

“This ATM crisis has increased the chance of recession and accelerated the downturn in the economy,” Pursche said. “It is natural that the Fed is reassessing its course of action, but it remains very clear that even if inflation is slowing, it remains a concern and needs to be brought under control.”

At last glance, financial markets have priced in a 60.5% probability that the central bank will raise the key policy rate by 25 basis points, and a 39.5% probability that it will leave the current rate unchanged, according to CME’s FedWatch tool.

The Dow Jones Industrial Average (.DJI) fell 384.57 points, or 1.19%, to 31,861.98, the S&P 500 (.SPX) lost 43.64 points, or 1.10%, to 3,916.64 and The Nasdaq Composite fell (.86IC) 6 points (.IXIC. 0.74% to 11,630.51.

All 11 major sectors of the S&P 500 ended the session in negative territory.

On the upside, FedEx Corp ( FDX.N ) rose 8.0% after raising its forecast for the current fiscal year.

Declining issues outnumbered advancing ones on the NYSE by a ratio of 4.07 to 1; on the Nasdaq, a 2.94 to 1 ratio favored decliners.

S&P 500 posted 5 new 52-week highs and 20 new lows; The Nasdaq Composite registered 29 new highs and 320 new lows.

Volume on US exchanges was 19.41 billion shares, compared to the average of 12.49 billion over the past 20 trading days.

Reporting by Stephen Culp in New York Additional reporting by Shubham Batra and Amruta Khandekar in Bengaluru Editing by Matthew Lewis

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