Ajit Karn
regional bank stocks plummeted on Monday as investors reassessed the value of such institutions following the collapse of Signature Bank and Silicon Valley Bank of united states.
It was reported that trading in approximately a dozen banks was halted due to the volatile market conditions, which triggered so-called circuit breakers designed to prevent runaway crashes.
The Arizona-based Western Alliance was the worst performer of the day, falling 80% in early trading. The New York Times reported that First Republic Bank fell 75%, Utah-based Zions Bancorp fell approximately 20%, Comerica fell approximately 30%, East West Bancorp fell 30%, and Regions Financial, headquartered in Birmingham, Alabama, was down approximately 10%.
Shares of larger banks were affected less severely, but were not immune. Citigroup and Wells Fargo declined by over 4%, Bank of America by over 3%, and JPMorgan Chase by approximately 1%. The New York Times reported that the KBW bank index, which tracks the performance of 24 major banks, fell 10%, adding to sharp losses last week that wiped out nearly USD 200 billion from the aggregate value of the banks in the index.
The leading American newspaper reported that the broader S&P 500 stock index shrugged off the worst of the pain in the banking sector, which is one of the index’s smaller sectors and thus has less impact on the overall market. By late morning, the S&P 500 had risen slightly.
The banking sector crisis also prompted a rapid reassessment of the number of times the Federal Reserve will raise interest rates, as concerns about the resilience of the economy are expected to restrain the central bank, according to the publication.
This caused the US government debt markets to experience their greatest fluctuations since 1987’s Black Monday, one of the most severe market crashes on record. According to the New York Times, the two-year Treasury yield, which is sensitive to changes in interest rate expectations, fell 0.54 percentage points during morning trading to just above 4%, its largest one-day decline since October 1987.
This may not seem like much, but the yield typically fluctuates by tiny fractions of a percentage point each day and only surpassed 5% for the first time since mid-2007 last week. The movement on Monday was reminiscent of the largest movements surrounding the collapse of Lehman Brothers and the dot-com bust of the early 2000s.
According to the New York Times, after increasing their wagers that the Fed will raise interest rates by up to a full percentage point in the coming months, investors are now sceptical that the Fed will be so aggressive.
The Fed has used higher interest rates to slow the economy and reduce inflation, which is also the source of the banking industry’s pain. According to Goldman Sachs, the Fed will not raise interest rates at its meeting next week.
From 5.5% last week to 4.7% on Monday, investors’ expectations for the Fed’s June interest rate decision have decreased. In tandem with the decline in interest rates, the dollar fell 0.9% against a basket of the major trading partners of the United States.
