Government intervention didn’t keep market anxiety from climbing in the U.S. stock market following the collapse of Silicon Valley Bank and Signature Bank.
The Cboe Volatility Index
shot up to more than 30 Monday morning before easing to around 26 in afternoon trading, according to FactSet data, at last check. That’s still above its close of 24.8 on Friday, when the stock-market fear gauge known by its ticker VIX ended at its highest level since November, FactSet data show.
State regulators closed California’s Silicon Valley Bank on Friday and New York’s Signature Bank, a crypto-friendly institution, on Sunday. The U.S. government took emergency steps over the weekend to make depositors whole and build confidence in the banking system.
The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement Sunday that Silicon Valley Bank depositors would have access to “all of their money” starting Monday. In citing a “similar systemic risk exception,” they also said all depositors at Signature Bank would be “made whole.”
Plus, the Fed said Sunday that it has created a Bank Term Funding Program to “help assure banks have the ability to meet the needs of all their depositors.”
But bank stocks were falling Monday, as seen with exchange-traded funds focused on the sector, amid worries that equity holders would be wiped out in bank failures even as depositors stood to be made whole.
See: Why bank ETFs are tanking despite regulators taking emergency steps to backstop depositors
“The risk is now outside the major banks — smaller and midsize banks and nonbank financial institutions,” said Katie Nixon, chief investment officer for Northern Trust’s wealth management business, in comments emailed Monday.
“Some smaller banks with large unrealized losses and concentrated deposit funding create the potential for risk,” she said. “And while a few may be vulnerable to something similar to” Silicon Valley Bank, “we do not see it becoming a systemic event for the economy or markets.”
Shares of large Wall Street banks were under pressure Monday, with JPMorgan Chase & Co.
down 1.1%, Citigroup Inc.
falling 6.3%, Goldman Sachs Group Inc.
dropping 2.9%, Morgan Stanley
down 1.1% and Wells Fargo & Co.
sinking 4.9%, according to FactSet data, at last check.
Goldman Sachs was among the worst performers in the Dow Jones Industrial Average Monday afternoon, while financials had the biggest losses of the S&P 500’s 11 sectors. The S&P 500’s financial sector was down around 2.5%, while areas such as real estate, utilities and information technology had some of the biggest gains, FactSet data show, at last check.
The U.S. stock market was trading up Monday afternoon, with the Dow
rising 0.4%, the S&P 500
advancing 0.6% and the technology-heavy Nasdaq Composite
gaining 1.3%, according to FactSet data, at last check.
Meanwhile, investors are bracing for a report Tuesday on inflation in February, with data from the consumer-price index due out before the U.S. stock market opens. The Fed has been battling high inflation with interest rate hikes, aiming to cool the economy to ease price pressures consumers have faced in goods and services.
“It’s likely that the Fed has landed between a rock and a hard place as it must balance financial stability with its efforts to curtail inflation,” said José Torres, a senior economist at Interactive Brokers, in emailed comments Monday.