U.S. stocks finished higher in volatile trading on Thursday, clawing back some of the Wednesday’s selloff as investors attempted to shake off concerns about banking-sector stability and the impact of an expected credit crunch.
The Dow fell 530 points on Wednesday as Treasury Secretary Janet Yellen’s remark that her department hadn’t discussed blanket protections for bank deposits appeared to overshadow the Federal Reserve’s latest interest-rate hike.
What drove markets
U.S. stocks indexes rallied to finish modestly higher on Thursday after wavering between gains and losses in the afternoon trading, as investors reassessed Treasury Secretary Janet Yellen’s comments on bank failures and the Federal Reserve’s rate path after its interest-rate decisions.
On Wednesday, stocks ended sharply lower after Yellen said that there was no discussion on insuring all bank deposits. Yellen told a Senate committee that blanket deposit insurance hadn’t been considered or discussed by her department.
However, Yellen also said late Thursday the federal government would take extra steps to stabilize the U.S. banking system if necessary, in prepared remarks for a House hearing. “We have used important tools to act quickly to prevent contagion,” Yellen said. “And they are tools we could use again.”
See: Yellen says U.S. would take ‘additional actions’ on bank system if necessary
Regional stocks tumbled on Thursday, with shares of regional lender First Republic Bank
dropped 6% and the SPDR S&P Regional Banking ETF
declined by 2.8%.
However technology stocks managed to gain as Treasury yields declined, with the Microsoft
Fed Chair Jerome Powell said in a press conference on Wednesday that the U.S. banking system remains sound and resilient, with strong capital and liquidity, with Fed actions in recent weeks demonstrating “that all depositor savings in the banking system are safe.”
“The contradictions between Powell’s comments and Yellen’s were confusing to the markets, but Yellen’s remarks [on Wednesday] were seen as backtracking on her commitment to helping keep small banks and their depositors safe in the event of panic setting in, which is the leading cause of contagion,” wrote Quincy Krosby, chief global strategist for LPL Financial.
“The last thing markets need now is confusion and reneging from its top government officials, but that is exactly what happened.”
See: Debate over expanding deposit insurance weighs on bank stocks. Here’s what to know.
See: Regional banks get the attention, but worries are more widespread, says ex-FDIC chief Bair
However, Powell said in the following press conference that the process of getting inflation lower still “has a long way to go” and rate cuts are not in their base case for the remainder of 2023.
“Yesterday’s steep market selloff occurred after Powell attempted to walk a narrow path between maintaining bank stability and fighting inflation. In doing so, he struck a cautionary tone that dashed investors’ hopes that he would provide a dovish outlook for monetary policy,” said José Torres, senior economist of Interactive Brokers.
Despite Powell’s hawkish tone, markets rallied on Thursday morning as investors believe the Fed has finished hiking rates and will begin cutting them as soon as July, Torres said.
Meanwhile, Citigroup CEO Jane Fraser’s comments pushing back against credit-crisis fears while speaking at the Economic Club of Washington, D.C., also helped restore the confidence of market participants.
“This is not a credit crisis. This is a situation where it’s a few banks that have some problems,” Fraser said.
Her comments initially may have had a calming effect on markets, said Rich Farr, chief market strategist at Merion Capital Group, during a phone interview with MarketWatch. He credited her remarks for helping to push U.S. stock futures and Asian markets higher overnight.
The U.S. central bank on Wednesday raised rates by an expected 25 basis points, while its statement said it anticipates “some additional policy firming may be appropriate” to bring inflation to its 2% target. That wording is a departure from previous statements which indicated “ongoing increases” would be appropriate to bring down inflation.
See: The stock market hit a pandemic bottom 3 years ago. Here’s how it has performed since then.
Economic data released Thursday showed the number of Americans applying for unemployment benefits last week declined to 191,000, the lowest number in three weeks. New data released Thursday showed new-home sales of 640,000 in February, compared with a revised 633,000 in January.
Outside the U.S., both the Swiss National Bank and Bank of England delivered interest-rate hikes less than 24 hours after the Fed’s.
The Swiss central bank lifted borrowing costs by 50 basis points after local authorities helped put together a hastily arranged deal for UBS Group
to take over scandal-scarred crosstown rival Credit Suisse Group
Credit Suisse shares have fallen by 90% over the past year, according to FactSet.
In the U.K., the Bank of England raised its policy rate by 25 basis points, its 11th consecutive increase.
Stocks in focus
shares ended 14.8% lower on Thursday after U.S. short seller Hindenburg Research touted the company as its latest target.
Shares of Coinbase Global
tumbled 14% after the company said on Wednesday that the regulator had issued it a Wells notice, a formal declaration that SEC staff intend to recommend an enforcement action.
ended 9% higher, with shares of the streaming giant booking their biggest daily gain of the year, according to Dow Jones Market Data.
See also: Coinbase’s stock tumbles on SEC warning, while First Republic and Regeneron shares rally, and other stocks on the move
— Jamie Chisholm contributed to this article