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U.S. stocks on Friday fell, with financial jitters continuing to weigh on sentiment despite regulators and major banks rushing in to support beleaguered regional lenders.
The tech-heavy Nasdaq Composite (COMP.IND) slipped 0.95% to 11,606.16 points in morning trade. The benchmark S&P 500 (SP500) was lower by 1.23% to 3,911.53 points, while the blue-chip Dow (DJI) slipped 1.38% to 31,803.07 points.
All 11 S&P sectors were trading in the red, led by a more than 3% drop in Financials.
The bank crisis was still very much in focus. Regulators and government agencies on both sides of the Atlantic have stepped up to quell fears about the stability of the global financial system.
On Thursday, eleven major banks including JPMorgan (JPM) and Bank of America (BAC) pledged $30B in deposits to beleaguered First Republic (FRC), helping lift market sentiment. Nevertheless, shares of the lender shed in post-market trading after its dividend was suspended, and slumped in early trading on Friday.
Billionaire investor Bill Ackman had some words of caution on the First Republic (FRC) saga.
“Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy … The market has responded to this fictional vote of confidence with a 35% after-market decline in FRB stock,” he said on Twitter.
The European Central Bank (ECB) on Thursday hiked rates by 50 basis points, and President Christine Lagarde in her post-policy press conference stressed that the banking sector was currently in a “much, much stronger position” than during the 2008 financial crisis.
The bank crisis and the ECB’s decision appeared to skew expectations firmly towards a 25 basis point hike by the Federal Reserve at its upcoming monetary policy committee meeting.
“Some optimism has returned to markets over the last 24 hours, with bank stocks stabilizing on both sides of the Atlantic and 2yr yields surging back. Even the ECB’s decision to pursue a 50bp hike went without incident, and investors grew in confidence that the Fed would follow up with their own 25bps hike next week, so we’re starting to see a modest change in the mood music,” Deutsche Bank’s Jim Reid said.
“Nevertheless, we shouldn’t get ahead of ourselves, and it’s worth remembering that we’ve already had a temporary period of stability on Tuesday that was then dented by the Credit Suisse worries on Wednesday,” he added.
Turning to the fixed income markets, yields were lower on Friday. The 10-year Treasury yield (US10Y) fell 19 basis points to 3.39%, while the 2-year yield (US2Y) was lower by 18 basis points to 3.95%.
Friday’s economic calendar was relatively light. U.S. industrial production stalled in February, coming in at +0.0% M/M compared to an expected +0.2%. Consumer sentiment figures will arrive shortly.
Among active stocks, First Republic Bank (FRC) was the top percentage loser on the S&P 500 (SP500), followed by other regional banks Comerica (CMA) and Lincoln National (LNC).
FedEx (FDX) was the top S&P percentage gainer after the delivery giant issued strong guidance.