Dow, S&P rallied on Fed’s move, Nasdaq slipped; UBS-Credit Suisse deal lifts bank shares
US stocks edged higher on Monday ahead of the Federal Reserve’s interest rate decision later this week, while bank shares rallied after UBS (UBS) said it would acquire the struggling Credit Suisse (CS) for $3.25 billion.
Dow Index (DJI) picked up 0.7%and the S&P 500 (SP500) rose 0.3%. But the tech-focused Nasdaq Composite (COMP.IND) slip 0.3%.
UB’ (UBS) acquired Credit Suisse (CS) But also Provides downside protection for the larger Swiss bank. The agreement, which was the result of a negotiation led by the Swiss government, was made “to restore much-needed confidence in the stability of the Swiss economy and banking system,” Credit Suisse said. (CS) speak.
The deal pushed bank shares higher, with the S&P 500 Financial Sector up 1.7% and Selected Financial Sector SPDR ETF (XLF) 1.3% higher after two consecutive weeks of losses.
“Central banks are clearly still extremely proactive in their efforts to contain contagion risks,” said Chris Senyek, an analyst at Wolfe Research. “More broadly, we believe this is another example of a central bank trying to tighten and loosen financial conditions at the same time.”
Senyek warned that while such actions mitigate the worst-case scenario in the near-term, “we believe they will also lead to more persistent inflation and prolonged recessions in some major economies. “
The recent banking turmoil has been change expectations firmly towards a 25bp rate hike at the Fed meeting this week. “The recent economic and inflationary dynamics have been overshadowed by banking system risks, prompting the Fed to drastically re-price its way,” said Bank of America analyst Mark Cabana.
Cabana is expected to grow 25 basis points, “without further stress/financial system contagion” and continue to see lower interest rates later this year.
Markets are currently pricing in a 74.5% chance of a 25 basis point increase, while there is a 25.5% chance of no gain at all.
Treasury yields rose, with US 10-year Treasury yields (US10Y) rose 7 basis points at 3.46% and the yield on the 2-year US Treasury note (US2Y) increased 12 basis points to 3.97%. Dollar Index (DXY) is 0.3% lower as it trades near the 103.4 level.
Regional banks rebound after New York Community Bancorp (NYCB) agreed to take over Closing Signature Bank’s (SBNY) deposits and some loans, marking the first step towards the FDIC bridging banking settlement.
Among active stocks, FleetCor (FLT) obtained on a dealing with active investors DE Shaw. Meanwhile, First Republic Bank (FRC) extended the decline after S&P downgraded the bank again, citing “significant long-term challenges.”