The banking crisis continued for another day as stocks fell and bond yields plunged.
The S&P 500 sank as much as 2.1% before ending the day with a loss of 0.7%, while markets in Europe fell more sharply as shares of Switzerland’s Credit Suisse dropped to a record low. The Dow Jones Industrial Average lost 280 points, or 0.9%, after dropping as much as 725 points. The Nasdaq composite rose 0.1% after erasing a steep decline…..Wall Street’s harsh spotlight has intensified across the banking industry recently on worries about what may crack next following the second- and third-largest bank failures in U.S. history over the last week. Stocks of U.S. banks tumbled again Wednesday after enjoying a brief, one-day respite on Tuesday.The heaviest losses were focused on smaller and midsize banks, which are seen as more at risk of having customers try to pull their money out en masse. Larger banks also fell, but not by quite as much.
The 2-year Treasury bond yields posted the biggest 3-day decline since the aftermath of the 1987 stock crash.
The yield has fallen around 100 basis points, or a full percentage point, since Wednesday, marking the largest three-day decline since Oct. 22, 1987, when the yield fell 117 basis points. That move followed the Oct. 19, 1987 stock market crash — known as “Black Monday” in which the S&P 500 plunged 20% for its worst one-day drop. The move was bigger than the 2-year yield slide of 63 basis points that took place in three days following the 9/11 attacks.The yield on the 10-year Treasury was down by more than 15 basis points at 3.543%.
Bond traders are now betting that the US Federal Reserve will implement rate cuts later this year, with expectations of a drop of around 100 basis points in the central bank’s policy rate from its anticipated peak in May.
According to Bloomberg and CME, swaps are pricing in a full point of Fed cuts between the expected May peak and year-end. The expected peak for the Federal Reserve policy rate is around 4.76%, with the March contract pricing in around a one-in-two chance of a single quarter-point hike for next week’s policy meeting. The expected year-end rate is around 3.67%, which is over a percentage point lower than the expected peak.Priya Misra, Global Head of Rates Strategy at TD Securities, told Bloomberg, “The market is pricing in a Fed that might be forced to hike into a recession and thus will have to quickly turn around and cut. Anticipating a reversal in June is too soon, but the market is pricing in the risk of widespread tightening in financial conditions.”
The situation on Wall Street could have been much worse, except that Swiss regulators pledged a liquidity lifeline to Credit Suisse after the flagship Swiss lender’s shares plunged as much as 30%.
The indexes regained some ground in afternoon trading following an announcement from a Swiss regulator that the country’s central bank would give Credit Suisse liquidity if necessary. Investors were concerned after the Saudi National Bank, Credit Suisse’s largest investor, said it could not provide any more funding.The news came after the Swiss lender said earlier this week it had found “certain material weaknesses in our internal control over financial reporting” for the years 2021 and 2022. U.S.-listed shares of Credit Suisseclosed nearly 14% lower.
This leads me to my question: How much longer can “big government” hold off the fiscal reckoning for pandemic police and focus on woke causes….like Black Lives Matter:
Silicon Valley Bank, which collapsed on Friday after a classic bank run, donated more than $73 million to groups related to the Black Lives Matter movement, online records show.A database from the conservative Claremont Institute shows the bank donated around $73,450,000 to the BLM movement and other social justice-related causes.As first reported by the Federalist, the now-defunct bank pledged in the summer of 2020 — when the nation was gripped by racial unrest after the police custody death of George Floyd — to increase its commitment to “diversity, equipment, and inclusion (DEI)” in the workplace.A report from August 2020 highlighted the fact that around two-thirds of the bank’s workforce met the “diversity” criteria.
To quote author Brent Weeks: “They made a deal and they liked the deal, until they had to pay the price.”
I suspect the price tag is going to be a hefty one for the deals that have been made, that the crisis will not be resolved anytime soon, and that all of us will eventually be impacted.
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