new york –
A late afternoon reversal on Wall Street sent stocks higher on Friday as markets got off to a weak start amid concerns about banks on both sides of the Atlantic.
The S&P 500 is up 0.6% after falling for most of the morning. The benchmark index saw him rise for the second week in a row. The Dow Jones Industrial Average rose 0.4% and the Nasdaq Composite closed 0.3% higher.
Optimism came at the end of the week as markets were reeling from concerns that banks were weakening under pressure from much higher interest rates. This has raised concerns about a possible recession and created great uncertainty about what the Federal Reserve and other central banks will do with interest rates going forward.
“Clearly there are concerns about a deeper banking crisis, both domestically and in Europe, but the market is overlooking it,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.
On Friday, all eyes were on Deutsche Bank, whose shares in Germany fell 8.5%. Earlier this month, Swiss bank Credit Suisse’s share price and confidence plummeted, prompting regulators to broker a takeover of him by rival UBS.
Credit Suisse faced a relatively unique problem over the years. But the second-largest US bank failure in history and her third-largest, which occurred earlier this month, puts the entire banking industry in a grim spotlight.
Other big European banks also fell on Friday, including Germany’s Commerzbank, which fell 5.5%, France’s BNP Paribas, which fell 5.3%, and UBS, which fell 3.5%.
Bank stocks ended mixedly on Wall Street. JPMorgan Chase is down 1.5% and Bank of America is down 0.6%.
In the U.S., similar to what caused the failures of Silicon Valley Bank and Signature Bank, investors are primarily interested in banks that may face a customer decline.
Investors are looking at small and medium-sized banks, which they see as being smaller and riskier than banks that are too big to fail.
First Republic Bank closed 1.4% lower. 90% reduction for the year.
Treasury Secretary Janet Yellen has said that if the government deems the system as a whole at risk, it will insure bank customers’ deposits, even those above US$250,000 insured by the Federal Deposit Insurance Corporation. Silicon Valley Bank and Signature Bank.
But Yellen this week fell short of a blanket guarantee for all depositors at all banks.
Cash-strapped banks lined up to borrow money from the Fed again this week. The Federal Reserve said Thursday that emergency lending to banks fell slightly last week to $164 billion, but remained high.
A big concern is that all the pressure on banks will pull back lending to small businesses across the country. The result could be fewer jobs, a weaker economy, and an increased likelihood of a recession that many economists already considered probable.
The job market remains very strong, but other parts of the economy are already starting to weaken under the weight of rising interest rates. Reports on the economy were mixed on Friday. It showed last month that orders for long-lasting products were lower than economists expected.
However, the second report suggests the fastest increase in business activity in almost a year. S&P Global’s preliminary report beat economists’ expectations.
Federal Reserve Chairman Jerome Powell said concerns over loan pullbacks have pushed the Fed to only hike rates by a quarter of a percentage point this week in its campaign to fight inflation, rather than a more aggressive 0.5 percentage point hike. Stated.
Higher interest rates may lower inflation by slowing the economy as a whole, but they increase the risk of a recession. It also affects the price of stocks and other investments. For Silicon Valley Bank and others, it meant a blow to the very safe bonds they owned.
The Federal Reserve (Fed) has raised its key overnight rate from virtually zero early last year to a range of 4.75% to 5%. It suggests that the central bank may raise interest rates again before holding them until the end of the year.
But traders are more skeptical. With a recession more likely, we’re betting big that the Fed will be forced to cut rates again this summer to ease pressure on banks and the economy.
“I don’t know if that will happen. Obviously these things change a lot, but I think there’s a very reasonable chance that interest rates today could be as high as they are going to be. Please lie down for a moment,” said Frederick.
Such speculation has fueled investors’ willingness to pile onto anything they deem safe, and has combined to cause huge, and sometimes wild, volatility in bond markets.
Yields fell further on Friday. The 10-year yield, which helps set rates on mortgages and other loans, fell to 3.38% from 3.42% late Thursday. Earlier this month, it was above 4%.
The fall in 2-year Treasury yields has been even more dramatic, tracking the Fed’s expectations more closely. It fell to 3.77% from 3.83% late Thursday, down from over 5% earlier this month.
Overall, the S&P 500 rose 22.27 points to 3,970.99. The Dow Jones Industrial Average was 32,237.53, up 132.28 points. The Nasdaq rose 36.56 points to close at 11,823.96.
Small business stocks outperformed the broader market. The Russell 2000 index rose 14.63 points (0.9%) to 1734.92.
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Contributed by AP Business Writers Elaine Kurtenbach, Matt Ott, and Paul Wiseman.
