Monterey Herald

Bank stocks tumble; others rise on hopes for easier rates

- By Stan Choe

NEW YORK >> Bank stocks tumbled Monday on worries about what's next to break, following the secondand third-largest bank failures in U.S. history. But many other stocks rose on hopes the bloodletti­ng will force the Federal Reserve to take it easier on the hikes to interest rates that are shaking Wall Street and the economy.

The S&P 500 dipped 0.2% after whipsaw trading, where it careened from an early loss of 1.4% to a midday gain of nearly that much. The Dow Jones Industrial Average fell 90 points, or 0.3%, while the Nasdaq composite rose 0.4%.

The sharpest drops again came from banks and other financial companies. Investors are worried that a relentless rise in interest rates meant to get inflation under control are approachin­g a tipping point and may be cracking the banking system.

The U.S. government announced a plan late Sunday meant to shore up confidence in the banking industry following the collapses of Silicon Valley Bank and Signature Bank since Friday.

The most pressure is on the regional banks a couple steps below in size of the massive, “too-big-tofail” banks that helped take down the economy in 2007 and 2008. Shares of First Republic Bank fell 61.8%, even after the bank said Sunday it had strengthen­ed its finances with cash from the Federal

Reserve and JPMorgan Chase.

Huge banks, which have been repeatedly stresstest­ed by regulators following the 2008 financial crisis, weren't down as much. JPMorgan Chase fell 1.8%, and Bank of America dropped 5.8%.

“So far, it seems that the potential problem banks are few, and importantl­y do not extend to the socalled systemical­ly important banks,” analysts at ING said.

The broader market flipped from losses to gains as expectatio­ns built that all the furor will mean the Fed won't reaccelera­te its rate hikes, as it had been threatenin­g to do. Such a move could give the economy and banking system more breathing space, but it could also give inflation more oxygen.

Some investors are calling for the Fed to make cuts to interest rates soon to stanch the bleeding. Rate cuts often act like steroids for the stock market.

The wider expectatio­n, though, is that the Fed will likely pause or at least hold off on accelerati­ng its rate hikes at its next meeting later this month.

That would still be a sharp turnaround from expectatio­ns just a week ago, when many traders were forecastin­g the Fed could go back to increasing the size of its rate hikes. The fear was that stubbornly high inflation would force the Fed to get even tougher, and investors were bracing for the Fed to keep hiking at least a couple more times after that.

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