By Isabel Wang
The sudden collapse of Silicon Valley Bank, which marked the biggest failure of a US financial institution since the height of the Great Recession in 2008, has rattled financial markets and sparked fears of systemic tremors in the banking system.
Here’s a look at big swings across markets since the crisis began to take hold last week.
Shares in the SPDR S&P Regional Banking ETF (KRE), which covers the regional banking segment of the broader S&P 500 index, fell 10% on Monday. The index closed 4.4% lower on Friday, as California regulators stepped in and officially shut down SVB, placing it into receivership under the Federal Deposit Insurance Corporation, or FDIC.
Shares of the SPDR S&P Regional Banking ETF bounced on Tuesday but are still down more than 18% in the past five trading days after falling to their lowest since November 2020, according to Dow Jones Market Data.
See: Why bank ETFs flounder despite regulators taking emergency action to stop depositors
US stocks have seen choppy trading over the past five trading days as investors worried about the health of the banking system and contagion risks following the collapse of SVB, Signature Bank and Silvergate Capital.
The large-cap S&P 500 index has been down nearly 2% since March 8, when SVB first announced it had sold $21 billion of its mortgage-backed securities at a loss of about $1.8 billion to meet customer demands about withdrawals, in addition to selling $2.25. billion securities to strengthen its financial position. It was the tipping point for the bank, raising red flags for depositors and causing the share price (SIVB) to fall.
See: How an inverted yield curve helped sink Silicon Valley Bank
The S&P 500 recovered some of its losses on Tuesday after three consecutive sessions of losses. The index traded 1.2% higher in early afternoon trade.
See: Banking turmoil could spell more pain for stocks as Fed’s battle with inflation drags on
The bond market saw wild swings as SVB’s collapse saw market participants sharply readjust their expectations of future interest rate increases from the Federal Reserve.
The yield on the 2-year Treasury note jumped 33 basis points to 4.35% on Tuesday morning and was on pace for its biggest one-day gain since 2009, after seeing its biggest daily drop since 1987 in the previous session, according to Dow Jones market data.
Markets are pricing in a 24% chance of no Fed rate hike this month and a 76% chance policymakers will raise rates by another 25 basis points to between 4.75% and 5%, according to the CME FedWatch tool. The chances of a 50 basis point hike, which was priced in last week after comments from Fed Chair Jerome Powell indicating the central bank was worried about the latest hot inflation data, are now nil.
See: How an inverted yield curve helped sink Silicon Valley Bank
The ICE US Dollar Index, an indicator of the greenback’s strength against a basket of rivals, fell 1.8% since March 8 as investors now bet the Fed will be less aggressive in raising interest rates to curb inflation. The dollar also closely follows the development in the 2-year yield.
The dollar index rose on Tuesday after the February CPI report showed inflation cooled modestly last month on a year-over-year basis, in line with economists’ expectations, although the cost of food and shelter remained stubbornly high.
Gold futures
Gold futures GCJ23 ended at a five-week high on Monday in the wake of the SVP collapse as the dollar weakened and government yields fell. The yellow metal’s most active contact jumped 5.2% since March 8, as investors piled into safe-haven assets despite President Joe Biden’s assurances that the banking system remains “safe” in the wake of the failures of SVB and Signature Bank .
Gold retreated modestly on Tuesday.
Crude oil:
Oil futures fell with U.S. benchmark West Texas Intermediate crude for April delivery, falling 3.6% to trade near $72.12 a barrel before the closing bell on the New York Mercantile Exchange on Tuesday afternoon.
Analysts said recession fears, heightened by the collapse of SVB, overshadowed signs of increased demand from China. Crude oil failed to bounce along with stocks and other assets on Tuesday, trading with significant losses and in tandem with back-to-back declines.
The contract has fallen 4.9% over the past five trading sessions, according to Dow Jones Market Data.
-Isabel Wang
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03-14-23 2029ET
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