Dow down 440 points as fears of banking contagion reemerge

U.S. stocks fell again on Friday as worries about banking-sector stability reemerged following a bankruptcy filing by SVB Financial and the release of data showing banks borrowed more than $150 billion from the Federal Reserve over the past week.

What’s driving markets
  • The Dow Jones Industrial Average

    shed 444 points, or 1.3%, to 31,800.

  • The S&P 500

    fell by 44 points, or 1.1%, to 3,915.

  • The Nasdaq Composite

    shed 90 points, or 0.8%, to 11,632.

The Dow closed nearly 400 points higher on Thursday as stocks soared following the announcement of a massive capital injection at First Republic Bank that was coordinated by some of the largest banks in the U.S.

What’s driving markets

Concerns about the banking sector’s ability to withstand ongoing deposit flight reemerged Friday morning after SVB Financial

announced it had filed for Chapter 11 bankruptcy protection. The move affects the SVB holding company after Silicon Valley Bank itself was put into FDIC receivership last Friday.

On Thursday, markets received a late-day reprieve following the announcement that 11 of the largest U.S. banks, including JPMorgan, Citigroup, Bank of America and Wells Fargo, had agreed to plunk $30 billion of uninsured deposits into First Republic Bank

But Fed data released Thursday afternoon in New York underscored the depth of deposit flight as banks pulled a combined $165 billion of borrowing from the central bank. Most of the borrowing occurred via the Fed’s discount window, but a small amount was also tapped through its new facility that allows bonds trading at a discount to be used as collateral, at par value.

The fact that borrowing through the discount window has soared to a record high was adding to the market’s concerns about the banking sector, analysts said.

See: Banks have borrowed $165 billion from the Fed in past week after SVB failure

Those concerns were manifested as shares of troubled banks came under pressure once again. Shares of Credit Suisse Group

and First Republic

traded lower on Thursday after both banks received injections of liquidity — with Credit Suisse tapping 50 billion francs ($54 billion) from the Swiss National Bank earlier in the week.

“I think there are still a lot of questions right now,” said said Mark Luschini, chief investment strategist at Janney, during a phone interview with MarketWatch. “Investors can’t seem to hold their enthusiasm for equities for longer than a 24-hour news cycle.”

It’s not hard to understand why investors are still so anxious about the banking sector given the surge in borrowing from the Fed, said Matt Maley, chief market strategist at Miller Tabak + Co.

“Given that banks borrowed over $150bn at the Fed’s discount window on Wednesday, which compares to $4.4bn the week before, one can understand why investors are worried that the situation might be a bit more dire than the authorities are admitting to right now,” Maley said in emailed commentary.

Data on U.S. industrial production released by the Federal Reserve Friday morning showed it was flat in February. Meanwhile, the University of Michigan’s latest reading on consumer sentiment showed consumers were more downbeat in March than at ay time in the last four months. Beyond that, investors are looking ahead to the Federal Reserve’s next interest-rate decision, which is due Wednesday.

See also: Fed likely to follow ECB’s playbook and hike interest rates next week

Stocks may be subject to more intraday swings as nearly $3 trillion in equity options are expiring during Friday’s “triple witching” affecting stock index futures and options and individual stock options.

See: U.S. stocks set for wild swings as trillions in option contracts set to expire Friday

Companies in focus
  • FedEx Corp.’s stock 

     jumped after beating analyst estimates in its fiscal third-quarter earnings. The shipping firm also lifted its profit forecast for the full fiscal year, increasing its earnings-per-share guidance to $14.40 from $13.80.

  • Shares of PacWest Bancorp 

    and of Western Alliance Bancorp 

    as regional banks continued to face pressure.

  • Shares of Microsoft Corp.

    rallied as analysts bet that the latest iteration of Chat GPT could give the tech giant an even greater edge. But other megacap tech names like Alphabet Inc.’s Class A

    and Class C

    shares, as well as shares of semiconductor giant Nvidia Corp.

    were helping to drive the Nasdaq’s outperformance.

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