September 24, 2023

US stocks closed higher on Friday despite a jump in the cost of Deutsche Bank’s credit-default swaps, helping to ease banking-sector concerns. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite each posted weekly gains.

how the shares were traded

The Dow gained 1.2% for the week, while the S&P 500 gained 1.4% and the Nasdaq gained 1.7%, according to FactSet data. The Dow snapped two consecutive weeks of losses, while the S&P 500 and Nasdaq each posted back-to-back weekly gains.

what drives the markets

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US stocks closed with modest gains on Friday, posting weekly gains, even as concerns about the banking system persisted.

The bank concerns have cast a “heavy cloud over the market,” with investors worried about a “weak link,” Yung-yu Ma, chief investment strategist at BMO Wealth Management, said in a phone interview Friday. Ma said he expects investors to potentially look to sell on any rally, “as long as some of these clouds don’t move.”

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Germany’s Deutsche Bank AG DBK shares,

Friday’s decline came after the cost of insuring the bank against credit default rose. The bank’s credit-default swaps had hit the highest level since late 2018. Reuters report Friday.

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Treasury Secretary Janet Yellen announced on Friday that she has called an unscheduled meeting of the Financial Stability Oversight Council, or FSOC, which was created in the wake of the 2008 financial crisis to help the government deal with threats to financial stability. The FSOC issued a brief statement after the market closed on Friday saying that “while some institutions have come under stress, the US banking system remains strong and resilient”.

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“Clearly, one would think there are some concerns,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. He said European banks’ problems harken back to an era of negative interest rates, which set banks up for large losses on their bond holdings.

The sell-off in Deutsche Bank shares hit banks in the US and Europe as banking-sector fears resurfaced. Shares of UBS Group UBS,
which recently agreed to buy rival Credit Suisse Group fell on Friday.

other major European lenders including Unicredit SpA of Italy

and Banco Santander S.A. SAN of Spain,
Their shares also saw a decline.

“The thing to know about the financial situation is that maybe there are banks that have problems, but there are others that don’t,” Frederick told MarketWatch during a phone interview. “People need to do some research.”

The S&P 500’s financials sector fell 0.1% on Friday, according to FactSet data.

While banking-sector woes hit the financial sector this month, outperformance by megacap technology stocks and other sectors has helped support the broader US equity market. Data from FactSet shows that so far this month, the S&P 500 is up less than 0.1%.

Concerns about the fragility of the banking sector are spreading after a year of aggressive interest rate hikes by the Federal Reserve. On Wednesday, the Fed announced it raised its policy rate by a quarter point to a range of 4.75% to 5%, while forecasting it could deliver another 25 basis-point hikes in 2023. .

In his first comments since the rapid collapse of the Silicon Valley bank two weeks ago, St. Louis Federal Reserve President James Bullard said Friday that the latest drop in Treasury yields could help ease the stress facing the banking sector. .

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The yield on the 2-year Treasury note TMUBMUSD02Y,
and the 10-year Treasury note TMUBMUSD10Y,
The Dow Jones each fell for its third straight week of declines Friday, according to market data. Two-year yields fell to 3.777% on Friday, the lowest level since September as of 3 p.m. Eastern Time, while 10-year Treasury yields fell to 3.379%, their lowest since January. is a low rate.

‘Red Alert signs of recession.’ Gundlach expects the Fed to cut rates substantially ‘soon’.

In US economic data, a Friday report on durable goods sales showed orders fell 1% in February, mainly due to lower demand for passenger planes and new cars. Meanwhile, the S&P Global Flash US services-sector index rose to an 11-month high of 53.8 in March.

The role of regional banks in the US economy is “huge,” said Sandy Brager, chief client officer at wealth management firm Aspirant, in a phone interview Friday. Bragger said he worries that recent regional bank failures will result in a reduction in lending that will slow economic growth and potentially lead to a recession.

“Our approach has been very diversified and we remain on the defensive side of things,” he said.

Within equities, this means holding “high quality companies” that should be resilient in “bad economic times,” including stocks in sectors such as healthcare, information technology and consumer staples, Brager said.

companies are in focus

-Steve Goldstein contributed to this report.