The Dow Jones Industrial Average dropped on Monday as a plan to backstop all the depositors in failed Silicon Valley Bank, along with other extraordinary measures, failed to boost bank shares.
The losses were contained as some investors bet the financial shock could cause the Federal Reserve to pause interest rate hikes.
The Dow Jones Industrial Average lost 90.50 points, or 0.28%, to close at 31,819.14. The 30-stock index, which posted its fifth straight day of declines with Monday's session, was able to pare losses after dropping more than 284 points earlier in the session.
The S&P 500 ended down 0.15%, to end at 3,855.76 after falling as much as 1.37% at one point. The Nasdaq Composite closed 0.45% higher at 11,188.84 points.
The Cboe Volatility index (VIX), Wall Street's preferred fear gauge, reached a level not seen since late 2022 and neared territory considered highly risky, up nearly 2 points at 26.52. Meanwhile, Treasury yields tumbled Monday, helping to lend some support to equities.
A joint statement from the Fed, Treasury Department and the Federal Deposit Insurance Corporation said all Silicon Valley Bank depositors would have access to their money starting Monday. The Fed also said it is creating a new Bank Term Funding Program aimed at safeguarding deposits. The facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions.
Bank stocks remained under pressure following last week's slide, with JPMorgan Chase and Citigroup falling. Regional banks fell even more, led by a drop of more than 61% in First Republic.
But investors bought up other areas of the market outside of banks, such as some technology stocks like Apple and defensive names including Johnson & Johnson and Eli Lilly.
Traders are pricing in about 2-to-1 odds that the Fed raises its benchmark borrowing rate by 0.25 percentage point at the March 21-22 meeting. But the market also is anticipating that by the end of the year, the central bank will lop off 0.75 percentage point in cuts, taking the rate down to a target range of 4%-4.25%. Current pricing indicates a terminal rate of 4.75% by May.
Goldman Sachs has gone even further, saying it no longer expects the Federal Reserve to hike rates at its meeting next week.
"This news really is really a deflationary shock that the Fed has to consider," said Gina Bolvin, president of Bolvin Wealth Management Group. "It's definitely a game changer."
February's consumer price index, the next data point to be released that can provide insight into the path of inflation, is slated to come out before the market opens Tuesday.
Stocks were mixed at closing bell.
The Dow ended down about 0.3%, while the S&P 500 closed 0.2% lower. But the Nasdaq Composite was able to avoid losses and end around 0.5% higher.
— Alex Harring
The Federal Reserve's top regulator will be leading a review into the events leading to the implosion of Silicon Valley Bank, the central bank announced Monday.
Vice Chair for Supervision Michael S. Barr has been tapped for the probe, the results of which will be released to the public May 1. The review will focus on the review and supervision of SVB, which the Fed oversees in its role as a regulator.
"The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve," Chairman Jerome Powell said.
—Jeff Cox
DoubleLine Capital CEO Jeffrey Gundlach believes that the Federal Reserve will still pull the trigger on a small rate hike next week despite the ongoing chaos in the banking sector that prompted extraordinary rescue action from regulators.
"I just think that, at this point, the Fed is not going to go 50. I would say 25," Gundlach said on CNBC's "Closing Bell" Monday. To save the central bank's "credibility, they'll probably raise rates 25 basis points. I would think that that would be the last increase."
— Yun Li
A group of insiders bought shares of PacWest Bancorp on Thursday as the bank stock cratered in the wake of the Silicon Valley Bank collapse.
As of Thursday, PacWest Bancorp CEO Paul W. Taylor bought up roughly $506,200 of his own company's stock, according to VerityData. He added about 22,800 shares, priced at $22.20 per share.
William J. Black, executive vice president of strategy and corporate development at the firm added about $267,400 worth of PacWest shares, or about 13,000 shares for $20.57 each.
Director Stephanie B. Mudick snapped up $67,300 worth of PacWest stock, for $20.70 per share. Meanwhile, directors William C. Hosler and Paul Robert Burke added about $41,300 and $44,500 worth of company stock, respectively.
In total, the five leaders bought roughly $926,700 worth of company stock on Thursday.
On Monday, PacWest shares tumbled roughly 20%, last trading at about $10 per share.
— Sarah Min
The recent bank failures — albeit some of the largest in U.S. history — are not the start of the next financial crisis, said Brad McMillan, chief investment officer and a managing principal at Commonwealth Financial Network. But they might suggest an end to the technology boom.
"Unlike in 2008, the government is getting ahead of the problem rather than trying to clean up afterward. That is a very positive sign," McMillan wrote in a note to clients on Monday. Still, he said the banking crises pose two risks for the market: an increased likelihood of a near-term recession and a tech sector slowdown.
While the tech startup-focused Silicon Valley Bank felt the effects of rising interest rates more intensely, McMillan expects to see banks and the broader financial sector pull back on lending and risk, which will slow economic growth and likely drag down markets. He also sees an added risk to the tech sector, noting that banks looking to replace SVB will likely not be as focused on the tech sector.
"One of the primary enablers of the tech boom is now gone," McMillan wrote in the note.
And while he said the situation is worth monitoring, it's not the start of the next financial crisis. He said investors should currently see the situation as a sign that the government takes the closures seriously and can help the U.S. banking system if needed.
"Unlike in 2008, the government has stepped in early and stepped in hard," he said. "We are not set for a rerun of the Great Financial Crisis. This is not the end of the world."
— Pia Singh
Credit Suisse moved to the sidelines on Logitech, downgrading shares to neutral from outperform.
"Given that there is little prospect of growth in the next six months in a challenging interest rate environment, we do not see any short-term catalysts, and we believe the holiday season (Q3) could become the first event to change the outlook," analyst Serge Rotzer wrote in a client note Monday.
Rotzer noted that Logitech's margins may improve due to easing cost pressures, components supply and shipping congestion, as well as the reopening of China. "However, this is not enough to drive the share price, in our view, as we need to see sales growth to justify higher multiples," said the analyst.
CNBC Pro subscribers can read more about his downgrade here.
—Hakyung Kim
Rivian Automotive hit an all-time low during Monday's trading session, dropping below $13.20 per share, after a Rivian spokeswoman said the company is in talks with Amazon to adjust their exclusivity agreement for the EV maker's electric delivery trucks.
The stock is down more than 2.7% in Monday's session.
Rivian and Amazon entered into an agreement in 2019 to produce 100,000 electric trucks for the online retailer, but Amazon's order of 10,000 trucks for 2023 came in at the "low end of a previously provided range," The Wall Street Journal first reported on Monday.
Eliminating the exclusivity clause of their agreement would allow Rivian to attract new customers as it ramps up production of Amazon vans and its R1 series pickup and SUV, as well as a forthcoming R2 model, CNBC reported earlier today.
— Pia Singh
Monday's market infers that some are fearing a domestic recession is about to start, Deutsche Bank research strategist George Saravelos wrote in a note to clients on Monday.
"We are now pricing in Fed cuts rather than hikes, the yield curve is bull steepening sharply, commodities and equities are down with cyclicals underperforming," Saravelos wrote. "This is all consistent with an imminent US recession."
Without certifying that this will happen, Saravelos noted three observations on current market conditions:
— Pia Singh
A popular adage in the market is that once it starts, the Federal Reserve will keep raising interest rates until something breaks. But even with the recent turmoil in the banking industry, markets largely expect the Fed to keep hiking.
"Is this enough to qualify as the kind of break that would have the Fed pivot? The market overall doesn't think so," Quincy Krosby, chief global strategist at LPL Financial, said of the recent collapses of Silicon Valley Bank and Signature Bank.
Markets in fact were pricing in about a 75% chance of a quarter percentage point increase when the Fed meets next week, according to CME Group data.
Goldman Sachs was an outlier in predicting that policymakers would take a brief pause then resume hiking once conditions get more stable. Economists at both Citigroup and Bank of America said they expect more increases.
Holding off a rate hike "would invite markets and the public to assume that the Fed's inflation fighting resolve is only in place up to the point when there is any bumpiness in financial markets or the real economy," Citigroup economist Andrew Hollenhorst said in a client note.
—Jeff Cox
Adam Crisafulli of Vital Knowledge noted that the broader market is keeping the declines in regional banks contained to that sector.
"The vertiginous collapse in financial stocks is breathtaking, but equally impressive is the broader market's ability to compartmentalize the financial carnage," Crisafulli wrote Monday.
"The lack of contagion comes down to three main factors: 1) the post-Lehman changes ... act as a circuit breaker, preventing trouble at one institution from inflecting the whole industry; 2) the Sunday night actions taken by the Fed, FDIC, and Treasury provided reassurances to regional bank depositors (although not regional bank shareholders); and 3) the plunge in yields provides a huge tailwind for equity valuations," he said.
— Fred Imbert
The three indexes were up as investors entered the final hour of the trading day.
The Dow was up 0.4%, while the S&P 500 and Nasdaq Composite each added 0.6% and 1.2%, respectively.
Despite each trading down earlier in the session, the indexes advanced investors bet that the fallout around Silicon Valley Bank and Signature Bank could push the Federal Reserve to change course on interest rate hikes.
— Alex Harring
Analyst Keith Horowitz upgraded PNC shares to buy from hold. He reiterated his price target of $175, implying more than 27% upside from Friday's close price.
"PNC is a high quality franchise with a strong management team and given the recent pullback we view this as an attractive entry point," Horowitz wrote in a note on Monday.
The analyst added that the regional bank "has a number of positives including larger benefit than most peers on fixed asset repricing tailwinds, screens well on our fair value analysis, clean asset quality, and strong deposit base."
CNBC Pro subscribers can read more about his upgrade here.
— Hakyung Kim
Utilities stocks are among those performing best within the S&P 500 and are on track for their best day since November.
The sector was last up 2.2%, which is the best day for the stocks since Nov. 30. WEC Energy Group performed the best within the sector with a 4.3% gain, followed by Xcel Energy at a 3.7% advance.
It's one of seven of the broad index's 11 sectors that's on pace to see gains for Monday's session. Real estate followed as the second-best performer so far, up 2%.
Financials continued to drag, down 2.5%. Energy was next worst-performing sector at 1.1% in the red.
— Alex Harring, Fred Imbert
A pair of banking exchange-traded funds each slid to their lowest levels since Nov. 6, 2020 as shares of regional banks dropped amid deposit flight fears.
The SPDR S&P Regional Bank ETF (KRE) shed more than 9% midday Monday, while the SPDR S&P Bank ETF (KBE) dropped more than 7%.
Notable losers include First Republic Bank, which tanked more than 62%, despite the institution having received additional liquidity from the Federal Reserve and JPMorgan Chase on Sunday. Western Alliance shares also plummeted 55%; the bank said in a regulatory filing that it had taken "additional steps" to strengthen its liquidity position. PacWest shares were down more than 30%. Trading in many bank stocks was halted repeatedly for volatility throughout the day.
— Darla Mercado, Gina Francolla
Davidson upgraded Prosperity Bancshares to buy from neutral on Monday, naming the Houston-based bank holding company a defensive play with a "fortress-like balance sheet."
In a note to clients on Monday, analyst Peter J. Winter noted that Prosperity is trading at its 52-week low after the failures of Silicon Valley Bank and Signature Bank, which the firm believes has no bearing on Prosperity Bancshares.
"Given the increased risks of a deeper recession, PB is a great defensive stock given its low risk balance sheet, strong deposit franchise, and peer leading capital ratios," Winter wrote. He added that the company maintains a high level of fixed rate assets that will reprice at much higher rates over the next 12 to 24 months.
The firm left its price target per share of $79 unchanged, suggesting the stock stands to gain more than 23% from Friday's closing price. Prosperity's stock price is down more than 2% in Monday's session, marking low not seen since 2020.
– Pia Singh
Not every regional bank stock is taking the heat from the fallout of Silicon Valley Bank's collapse.
A handful of regional bank stocks bucked the broader sector's downtrend on Monday. That included shares of United Bankshares and Washington Federal, last up 5.2% and 3.8%, respectively. Valley National Bancorp shares gained 3.6%.
— Samantha Subin
The recent pullback in Charles Schwab shares presents a compelling entry point for investors, according to Citi.
Analyst Christopher Allen upgraded Schwab shares to buy from neutral, saying that Schwab shares have limited risk of deposit flight risk.
"We see current valuation levels as a compelling entry point given SCHW's long-term track record of delivering healthy asset/revenue growth and opportunities for margin expansion in 2024/2025 given current investment levels," Allen wrote in a Monday note.
CNBC Pro subscribers can read more about his downgrade here.
— Hakyung Kim
As markets bounce between gains and losses on Monday, the relative performance of value stocks could be key for determining what investors think is coming next, according to Lauren Goodwin, economist and portfolio strategist at New York Life Investments.
"I'm interested in not only the direction but the tenor of equity market moves," Goodwin said.
"For example, if we have a strong down day, is that reinforced in growth equity more than value, which would suggest that the market is more concerned about these long duration plays in the technology sector. Or do we see actually value have a harder day, which would suggest that the market is deeply concerned about recession."
The pattern would need to play out beyond Monday to show a true trend for the market, Goodwin added.
The Vanguard Value ETF (VTV) was down less than 0.5% in afternoon trading.
— Jesse Pound
Financial names were among the biggest stocks making the biggest midday moves.
Here's a few of them:
— Michelle Fox
"While some of the selling in certain banks seems overdone, it's hard to know when the 'crisis of confidence' will improve," said Solita Marcelli, chief investment officer at UBS Global Wealth Management.
At midday, the SPDR S&P Regional Banking ETF was down more than 8%, hitting its lowest level since Nov. 6, 2020. Shares of First Republic were leading the decline. The stock is trading at all-time lows dating back to its December 2010 initial public offering.
Other laggards include Western Alliance, UMB, First Horizon and PacWest, among others.
For investors looking to take advantage of the sell-off, Marcelli recommends a focus on some the largest U.S. bank stocks.
"... Maintaining depositor and investor confidence is crucial for a financial institution, and we cannot completely rule out the possibility that other banks could face similar concerns, despite what appear to be very sound balance sheets across the industry," she said.
—Christina Cheddar Berk