Wall Street aims to open a New York trade on an optimistic note under high volatility. The stock market made efforts in the pre-market to recover losses incurred during the gloomy February. Macroeconomic data enables the stock indices to get their second wind.

A slump of shares in the banking sector set the stage for losses on Wall Street on Monday because investors worried about the chain reaction. Stock investors were unnerved and the benchmark indices closed mixed. The Dow Jones closed 90 points or 0.28% down. The Nasdaq managed to gain 0.45%. The S&P 500 inched down by 0.15% to close at 3,855.
The benchmark indices traded sluggishly intraday but perked up following the release of the US inflation data. Futures on the ley indices rose by 1-1.3% signaling bullish prospects for the North American trade. The S&P 500 is expected to trade in the corridor between 3,850 and 3,990 today.
Silicon Valley Bank collapsed on Friday after a failed attempt to expand its capital. Investors were alarmed, wondering about risk that the Fed’s aggressive monetary tightening could have entailed to other banks. Market participants assume that the US central bank could soften its hawkish rhetoric. In turn, yields of the US two-year Treasuries went down.
Investors are trying to strike a balance between fears and hope. The unity sector grew by 1.54%, logging the strongest among the 11 sectors in the S&P 500. Besides, the companies sensitive to interest rates such as the real estate and high-tech sectors also gained ground. The banking sector was hit by sell-offs.
The shares of Signature Bank which were terminated by the watchdog were suspended from trading. The Nasdaq said they would remain halted until the request by the stock exchange is met in full.
The shares of First Republic Bank plummeted by 61.83%. In contrast, the shares of Western Alliance and PacWest Bancorp nosedived by 47.06% and 21.05% respectively. Trading shares was suspended a few times.
Charles Schwab tumbled 11.56% upon resuming trade after the financial services company reported a 28% decline in average margin balances and a 4% fall in the overall clients’ asset in February.
Top US banks lost almost 90 billion dollars in the stock markets on Monday. As a result, their losses in the last three sessions equaled nearly 190 billion dollars.
At the same time, the market revised radically the expectations about the Fed’s policy moves. At present, traders foresee a rate hike by 25 basis points in March. There is also a 44.4% chance that the central bank will maintain interest rates at the current level.
The striking fact is that the market expects the Federal Reserve to terminate the whole cycle of tightening leaving the ultimate rate size at 4.71%, lower than the upper border of the current target range between 4.50 and 4.75%.
The market turmoil pushed up the fear index. Overnight, the VIX index approached the highest level in six months. Other indicators of the market stress also revealed signs of tension. ICE BofA MOVE, the index bond market’s volatility, surged to a 14-month high.
The market is still gripped by jitters. The sharp revision of the interest rates forecast weakened the US dollar. In turn, gold spiked as a safe haven asset. The gold price has skyrocketed by 5% over the last week to 1,900 dollars per troy ounce.
In light of such a revision, the US bond market burst into a roller coaster. On Monday, yields of 2-year Treasuries tumbled most sharply since the crash in the stock market in 1987.
The scale of price swings was mirrored in the MOVE index which recorded the wildest volatility in the bond market since 2009. This burst of volatility exceeds the most turbulent periods during the pandemic and the shock in the repo market in 2018.
The red-hot CPI could cement market expectations for the Fed’s pause. The data released today was in line with the market consensus. The annual CPI in the US slowed down to 6% in February from 6.4% in January. It is the lowest reading since September 2021 and matches the median forecast. Food and energy prices grew at a slower pace. Prices of second-hand cars and trucks went down.


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