Wall St rises in choppy trade as markets weigh rate hike pause, bank contagion risks

By David Carnevali

NEW YORK (Reuters) – Major U.S. stock indexes rose on Monday in see-saw trade with many bank shares lower, as investors started to think the Federal Reserve could ease up on interest rates hikes to guard against contagion from the Silicon Valley Bank collapse.

SVB Financial’s sudden shutdown on Friday after a failed capital raise had investors worried about risks to other banks from the Fed’s sharp rate hikes over the last year. But many speculated the central bank could now become less hawkish, and the yield on the 2-year Treasury tumbled.

Regulators over the weekend stepped in to restore investor confidence in the banking system, saying SVB’s depositors will have access to their funds on Monday.

To some investors, the Fed’s decision next week will also hinge on inflation data due this week.

“If we get shockingly bad Consumer Price Index and Producer Price Index, the Fed is going to find itself in a tough spot or a much tougher spot that it even find itself in ahead of those prints,” said Orion Advisor Solutions CIO Timothy Holland.

The Dow Jones Industrial Average rose 185.56 points, or 0.58%, to 32,095.2, the S&P 500 gained 30.87 points, or 0.80%, to 3,892.46 and the Nasdaq Composite added 166.85 points, or 1.5%, to 11,305.74.

The benchmark S&P 500 is now up slightly more than 1% for the year so far. Earlier in the session it fell, briefly erasing all the year-to-date gains.

The CPI and PPI data is due Tuesday and Wednesday, respectively.

The defensive utilities sector rose 2.29% as the best performing of the 11 major S&P sectors while interest rate sensitive groups such as real estate and technology also climbed.

“The market is now expecting that the Fed is likely to not raise rates this month and so they may enter a pause period,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

Shares of SVB’s peer Signature Bank (NASDAQ:SBNY), which was also shut down by regulators, were halted. Nasdaq said they would remain so until the exchange’s request for additional information was “fully satisfied.”

President Joe Biden vowed to do whatever was needed to address the threat to the banking system.

First Republic Bank (NYSE:FRC) dropped 50.71% as news of fresh financing failed to reassure investors, while Western Alliance (NYSE:WAL) Bancorp and PacWest Bancorp fell 42.34% and 22.27%, respectively. Trading in the stocks was halted several times.

Weighing on the S&P 500, Charles Schwab (NYSE:SCHW) tumbled 8.12% upon resuming trade after the financial services company reported a 28% decline in average margin balances and a 4% fall in total client assets for February.

Shares of big U.S. banks, including JPMorgan Chase & Co (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) all lost ground, with the S&P 500 bank index plunging 5.14% while the KBW regional banking index fell 4.90%.

The CBOE Volatility Index, known as Wall Street’s fear gauge, rose 0.86 points to 25.66 after earlier hitting 30.81, its highest since late October.

Traders are now largely pricing in a 25 basis point rate hike from the Fed in March, with bets that the central bank will hold interest rates at their current level standing at 31.4%.

Among individual stocks, Pfizer Inc (NYSE:PFE) was up 1.87% after the drugmaker said it would buy Seagen Inc for nearly $43 billion.

Declining issues outnumbered advancing ones on the NYSE by a 1.69-to-1 ratio; on Nasdaq, a 1.36-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week highs and 48 new lows; the Nasdaq Composite recorded 27 new highs and 490 new lows.