Stocks closed higher on Monday as traders grew hopeful that a crisis in the banking sector may be easing. The gains followed a forced takeover of Credit Suisse by UBS engineered by the Swiss government.
The Dow Jones Industrial Average jumped 382.60 points, or 1.20%, to close at 32,244.58. Meanwhile, the S&P 500 rose 0.89% to end the session at 3,951.57. The Nasdaq Composite gained 0.39% and closed at 11,675.54.
Regional banks rose on Monday, rebounding from big losses in the past week. Wall Street expects more action may be needed to restore confidence in the banking system after U.S. regulators backstopped SVB's uninsured deposits and offered new funding for troubled banks.
The SPDR Regional Banking ETF (KRE) gained more than 1% after tumbling 14% last week. PacWest, First Citizens and Fifth Third Bancorp were among the major gainers. The ETF rose 5% at one point during the trading session, but saw some of its gains reverse as First Republic shares fell 47%.
"There's just a fundamental issue here," said Eric Diton, president and managing director of The Wealth Alliance. "People who are holding uninsured deposits at regional banks are nervous and the banking system is based on confidence and trust. You're not going to put your life savings somewhere, if you're not 100% confident that it's going to be there when when you need it."
The instability in the financial sector over the past two weeks raises the stakes for the Federal Reserve's interest rate decision on Wednesday. As of Monday, there was about a 73% chance of a quarter-point increase by the Fed, according to CME Group's FedWatch tool. The other roughly 27% is in the no-hike camp, anticipating that Chairman Jerome Powell may start to ease his aggressive tightening campaign that began in March 2022, in the face of the emerging financial contagion.
"We're still not feeling the full effects [of the rate hikes]. Regional banks, which account for maybe around a third of all lending in the United States, [are] now going to have to pull back on lending to shore up their balance sheet," Diton said.
"That's much tighter capital for the whole economy. It does the Fed's work [of] trying to slow down the economy. So whether they do nothing, or they raise 25 basis points [on Wednesday], I think there's a good chance that they may very well sit and wait after that," added Diton.
Lea la cobertura del mercado de hoy en español aquí.
Correction: The Wealth Alliance's Eric Diton said, "People who are holding uninsured deposits at regional banks are nervous and the banking system is based on confidence and trust." An earlier version of this story misstated his quote.
The three major averages ended Monday higher as investors expressed guarded optimism over the state of the banking sector.
The Dow Jones Industrial Average closed 1.20% higher, while the S&P 500 added 0.89%. The Nasdaq Composite added 0.39%.
-Darla Mercado
Markets are facing a possible "Minksy moment" ahead as financial and geopolitical risks mount, according to JPMorgan strategist Marko Kolanovic.
""The possibility of a Minsky moment in markets and geopolitics has increased," he wrote in a client note Monday. "Even if central bankers successfully contain contagion, credit conditions look set to tighten more rapidly because of pressure from both markets and regulators."
The term refers to moment when markets break down, often following high amounts of speculation and easy policy.
"The outbreak of financial market stress is set to have a material effect on monetary policy for some time to come, as risks to the outlook have changed," Kolanovic added.
—Jeff Cox
The Federal Reserve may hike interest rates by 25 basis points when it meets this week, despite the banking crisis, but "that would be a mistake," said MKM Partners' chief economist, Michael Darda.
Even if the central bank skipped a rate increase, monetary conditions will likely continue to tighten, he said.
"A backward looking monetary policy will put us into perpetual boom and bust cycles and we are moving into the bust phase now," Darda said in an interview with CNBC's "The Exchange."
However, looking forward will take a leap of faith and the Fed doesn't want to do that, he said.
"That sets up for potentially drastic tightening in monetary conditions, which simply could be the neutral interest rate falling as the banking crisis gets worse."
Darda said the S&P 500 could have to fall 15% to 20% for it's buying opportunity. In this environment, health care is his favorite sector.
— Michelle Fox
Despite being a worst-performing sector last week, energy stocks within the S&P 500 have staged a comeback in Monday's session.
The sector was up 2.2% in Monday's session, regaining some ground after dropping 7% last week. Materials, the next best performer on Monday, advanced 1.7%.
Energy's climb comes amid a broad rally for the index. Nine of the eleven sectors were trading positive, while information technology and consumer discretionary traded within 0.1% of the flatline shortly after 2:30 p.m. ET.
— Alex Harring
JPMorgan Chase is advising embattled First Republic Bank on strategic alternatives after last week's $30 billion deposit failed to stop the slide for the bank's stock, sources told CNBC's David Faber.
The alternatives may include a capital raise, the sources said, which could dilute current shareholders. A sale of the bank is also a possibility.
The stock was last down about 39% for the session.
— Jesse Pound
The S&P 500 posted a solid gain last week, but Bank of America's Stephen Suttmeier isn't sounding the all-clear yet.
The bank's technical strategist said in a note Monday that the broader market index posted a second straight weekly close below its 40-week moving average.
"Last week's bounce suggests support from 3810 to 3764," he said. "Resistance comes in at the March MTD peak at 4078 and the December highs near 4101. The SPX pattern remains challenged if the index stalls within the zone of the 13, 26 and 40-week MAs from 3903 to 3979 or near the 4078-4101 resistance."
— Fred Imbert, Michael Bloom
A pause from the Federal Reserve this week could mean bad news for equities and the bond market, according to Nationwide's Mark Hackett.
"While the bond market is increasingly betting on a pause in rate hikes, the equity market is expecting a 25-basis point hike," the chief of investment research said. "If the Fed pauses its tightening, we expect panicked reactions by equity and bond investors."
Hackett also said he is optimistic that the bond market can weather the storm despite "signs of stress." That's because of the sector's solid capital position versus 2008 and the resilience of the equity market, he wrote.
— Samantha Subin
Some indicators are flashing near-oversold conditions, but investors should stay on guard ahead of this week's Federal Reserve meeting, according to Canaccord Genuity.
The S&P 500 has remained resilient in the wake of ongoing banking concerns, but other markets are under "significant pressure," according to analyst Tony Dwyer in a Monday note. The analyst cited the Equal Weighted SPX and the Russell 2000, both of which have given back this year's gains; As of Monday trading, they're off by 1.4% and about 0.7% in 2023, respectively.
While that could mean a "sharp rally" up ahead, the analyst said investors should remain on the defensive as markets could retest October lows.
"The poor performance underneath the surface of the major market indices coupled with a near oversold condition in our key tactical indicators may be setting the stage for a sharp rally," Dwyer wrote.
"Our game plan remains the same: stay lighter in exposure and slightly defensive in sector allocation and stand ready to take advantage of any weakness if/when bad news becomes bad news and the market moves back to/below the October low," he added.
— Sarah Min
Here are some of the names making the biggest moves in midday trading:
To see more stocks making moves in midday trading, read the full story here.
— Michelle Fox
DoubleLine Capital CIO Jeffrey Sherman believes the banking crisis is still unfolding and it's too early to look for buying opportunities in credit markets.
"Right now we've only seen the tip of the iceberg of some of the stuff out there," Sherman said on CNBC Monday. "It leads to wider spreads and leads to a higher cost of capital. That means there's even more stress on those companies."
Sherman said investors should avoid taking on extremely speculative risks such as the lower credit tiers.
"I think this is not over yet. We need to be very careful in terms of looking at some of those distressed opportunities," Sherman said.
— Yun Li
Shares of First Republic fell to their lows of the day after a Wall Street Journal report that JPMorgan CEO Jamie Dimon was leading efforts by large banks to potentially offer more support to the struggling regional bank.
Last week, JPMorgan and 10 other banks announced a $30 billion deposit into First Republic. Further help could involve converting part or all of that $30 billion into a capital infusion, the report said.
Shares of First Republic were down more than 40% following the report.
— Jesse Pound
Small caps stocks rose on Monday, with the Russell 2000 up more than 2% at session highs and on pace for this best day in at least a month.
If the sector finished up more than 2.06%, small caps would notch their best day since Feb. 2. A gain or 2.45% or more would mark the best day since Jan. 31.
Some stocks leading the gain in small caps included Franchise Group, Talos Energy and Arbor Realty Trust, up 10.3%, 10.1% and 6.7%, respectively.
— Samantha Subin, Gina Francolla
The federal government should expand its guarantee to all bank deposits regardless of size in order to slow bank runs, but it should charge customers for that insurance, hedge fund manager Nelson Peltz said Monday.
The Trian Fund Management founding partner told CNBC that customers pulling money out of smaller banks is a "dangerous situation" and that he has talked to elected officials about expanding the deposit insurance program that is currently capped at $250,000 per account. The change would involve paying insurance premiums to the Federal Reserve.
"I would put together a plan that applies only to U.S. banks in that the Fed gets an insurance premium for any money you leave in a U.S.-accredited bank over $250,000. So you're creating income for the Fed, and in exchange for that they insure the overage," Peltz said on CNBC's "Squawk on the Street."
The full story can be found here.
— Jesse Pound
Investors have flocked to tech stocks in recent weeks as yields tumble and banking fears rattle financial markets. But not every tech stock is a safety trade.
"Although technology and tech-related areas have been a bastion of safety in large cap land, it is incorrect to say that investors are moving to tech for safety, as this dynamic has not played out across small and mid cap tech," wrote Raymond James analyst Tavis McCourt in a Sunday note to clients.
Just like 2020, many investors have moved into megacap tech stocks recently, with Alphabet, Meta Platforms and Salesforce up more than 12% this month. Nvidia's gained 10.5%, while Microsoft and Apple have added 8.9% and 6%, respectively.
Month to date, the S&P 500's communication services sector's gained more than 5% this month. But broken down, only large cap stocks appear to be outperforming, with shares of names like Match Group, Paramount Global and Fox down for the month.
— Samantha Subin
Apple stock has been in a breakout zone and is continuing to steam higher, after a roughly 4.5% move up last week.
Apple stock rose about 1.8% in late morning, trading just under $157, its highest level since October.
Scott Redler, partner with T3Live.com, is watching the stock heading into the Federal Reserve's rate decision Wednesday afternoon. The meeting will be followed by a briefing from Fed Chairman Jerome Powell. The Fed meeting is viewed as a potentially significant catalyst for the market.
"AAPL's pattern is building nicely. If this market wants to respond well post-Powell, this can be a vehicle to propel things," wrote Redler in a note Monday morning. "Holding $153ish keeps active longs in. It will need a high-volume move and close above $157.50 to ignite the pattern. We'll see."
--Patti Domm
U.S. regional bank stocks clawed back into the green on Monday after facing steep losses in the market last week.
PacWest Bancorp rose 18.6% and Fifth Third Bancorp rose 7.6%, while Zions Bancorp and KeyCorp gained 4.7% and 4.3%, respectively. The SPDR S&P Regional Banking ETF recently gained 4.3% and the KBW Nasdaq Regional Banking Index was up 3.9%.
While its rivals are bouncing back, shares of First Republic Bank slid on Monday after Standard & Poor's cut the credit rating of the San Francisco-based firm on Sunday. The stock is down nearly 14.5%.
— Pia Singh
Last month, Bank of America saw the ratio of inflows to outflows in its small business checking and savings accounts drop to its lowest February reading over the past five years. The bank views the ratio as a proxy for profits.
"The latest data from the National Federation of Independent Business shows that small business sentiment in February ticked up slightly but was still near its decade low," Bank of America economists Anna Zhou and Taylor Bowley wrote in a note to clients last week. "Small businesses are facing crosscurrents, but headwinds from higher costs appear to be blowing slightly stronger than consumer-related tailwinds, leaving profits increasingly squeezed."
The net account inflow remained positive for January and February combined, however, the bank noted. The inflow-to-outflow ratio for small businesses, based on the bank's internal data, remained lower in 2022 compared to prior years.
— Pia Singh
New York Community Bancorp surged nearly 40% after news that a subsidiary would take over parts of closed Signature Bank.
The Federal Deposit Insurance Corporation announced over the weekend that Flagstar Bank, a subsidiary of the company, would take over basically all of Signature's deposits and all 40 of its former branches, as well as some of its loan portfolios.
Signature Bank, a major crypto lender, was closed on March 12 as regulators attempted to prevent the bank crisis that began with Silicon Valley Bank's closure from spreading. Regulators said the same day the bank was closed that all depositors would be made whole.
— Alex Harring
The front-month April WTI Nymex was lower by 1.45% on Monday, trading at $65.75 per barrel. That level is still above Friday's low of $65.17, which was the lowest level since December 2, 2021 when WTI traded as low as 62.43
Brent oil prices also dipped into the red, recently down 0.7%, or at $72.47 per barrel.
— Pia Singh
The banking system "still doesn't have any confidence" despite the UBS buyout of Credit Suisse, according to OANDA's senior market analyst Edward Moya.
"Despite a couple major weekend attempts to contain the risks hitting the banking system, US stocks are wavering as risk aversion won't be going away until markets are confident that the Fed is done with their rate hiking campaign," said Moya.
"The banking system still doesn't have any confidence as Wall Street tries to send yields sharply lower," Moya added.
The analyst anticipates the Federal Reserve will relax its aggressive monetary policy tightening campaign on its announcement on Wednesday.
"It looks like credit conditions will continue to tighten while monetary policy conditions are expected to loosen as the economy heads to a recession," said Moya.
— Hakyung Kim, Alex Harring