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Wall Street’s main indexes fell more than 1% on Friday as efforts to secure a bailout for some regional lenders failed to calm investor fears of a broader banking crisis.
Major banks including JPMorgan Chase & Co and Morgan Stanley stepped in to pump $30 billion into the First Republic on Thursday, helping to calm some nerves and lift US stocks.
The rally was short-lived and fears of a banking crisis gripped the market on Friday, with shares of First Republic Bank, which also suspended its dividend, falling 24.5%.
The lender’s shares took a beating this week, falling 68%, in a widespread bank sell-off following the recent collapse of SVB Financial and Signature Bank, fueling fears of a wider banking crisis stemming from rising interest rates.
SVB Financial said Friday it has filed for court-supervised reorganization under Chapter 11 bankruptcy protection to seek buyers for its assets. Peer PacWest Bancorp fell 13.1%, while Western Alliance declined 16.9%.
S&P says the fallout from SVB will not lead to rating actions on APAC banks
Major US banks including JPMorgan, Citigroup and Wells Fargo also fell between 3.0% and 4.1%. Most of the 11 major S&P 500 sectors fell.
The KBW regional banking index and the S&P 500 banking index each fell more than 9% on the week.
“The Dow and the S&P took a hit after the selloff that we had, especially the financials that took them down. “Fears of what these potential bank failures could mean for the economy have caused cyclicals to lag,” said David Russell, vice president. of market intelligence in TradeStation.
“At this point how the Fed responds to stress in the banking sector is really what matters, because that determines interest rates.”
News of the First Republic bailout came after the European Central Bank (ECB) hiked its rate by 50 basis points despite concerns about the region’s banks following problems at Credit Suisse, which was cut by 5.6%.
Investors are now looking to the Federal Reserve’s interest rate decision, due next week, to gauge how it will tame inflation.
With U.S. Treasury yields falling, shares of Microsoft and Alphabet rose 0.2% and 0.5% respectively, providing some support for the Nasdaq, which is set for its biggest weekly percentage gain in two months .
Money market participants now see a 67% chance the Fed will raise rates by 25 basis points on March 22. Meanwhile, data showed U.S. factory output rose in February.
At 11:49 a.m. ET, the Dow Jones Industrial Average was down 456.83 points, or 1.42%, at 31,789.72, the S&P 500 was down 52.00 points, or 1.31%, at 3,908.28 , and Nasdaq drops 131.23 points. %, to 11,584.97.
On a positive note, shares of FedEx Corp rose 7.7% after the shipping giant raised its full-year profit forecast.
Declining issues outnumbered advancers by a 5.46-to-1 ratio on the NYSE to a 3.56-to-1 ratio on the Nasdaq.
The S&P posted four new 52-week highs and 18 new lows, while the Nasdaq posted 21 new highs and 201 new lows.
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