The markets are at sixes and sevens. This is how market quotes look now. Frenzied volatility continues to rage on the charts of the main asset classes, and money flows are rushing from one trading instrument to another at breakneck speed. The main reason for such turbulence is the crippling banking system. The big question is how central banks will act if commercial banks collapse.
On Tuesday, US stock indices recovered as inflation data came in line with expectations. Meanwhile, there are hopes that the Fed is more likely to refrain from rate hikes in the near future. The Dow Jones Industrial Average managed to recoup its previous losses by the closing bell, gaining 336 points or 1.06%. The Nasdaq index became the top gainer, adding 2.14%. The S&P 500 index rose by an impressive 1.68% and closed at 3,920.
Major US stock market indices started the new trading day extremely weak. The three most widely followed indexes in the US lost all of Tuesday's gains and were down by 1.4-1.9%. The main reason for the drop was the fear of contagion in the banking sector.
US economic data could improve market sentiment. However, the day offered only high volatility and market sentiment may drastically change by the end of the trading session today. Taking into account the current background, the S&P 500 index is likely to trade within a wide trading range of 3,790 - 3,970.
On Tuesday, financial companies' stocks recouped some of their losses, with the S&P 500 Banks index recovering from its sharpest one-day sell-off since June 2020. Fears of a financial contagion faded on Tuesday when US President Joe Biden and other global politicians pledged to contain the crisis.
The US Department of Labor's inflation report showed that consumer prices fell in February, mostly in line with market expectations, and the general and core indicators posted long-awaited year-over-year declines.
Nevertheless, inflation is well above the central bank's target of 2%.
Signs of a weakening economy, along with concerns about regional banks, have increased the chances that the Federal Reserve will raise the key interest rate by 25 basis points on March 22.
Currently, financial markets are forecasting a 25 basis point rate hike with a 74.5% probability.
All 11 major sectors of the S&P 500 closed the trading day rising, with the communication services index showing the largest increase. Shares of First Republic Bank and Western Alliance Bancorp jumped by 27.0% and 14.4% respectively, recovering from declines seen in the previous session.
Meta announced 10,000 job cuts in its second round of layoffs. Its stock rose by 7.3%.
Competing ride-hailing apps Uber and Lyft surged by 5.0% and 0.6% respectively, after a California state court resumed a vote allowing companies to treat drivers as independent contractors rather than employees.
Shares of United Airlines dropped by 5.4% after the commercial carrier unexpectedly projected losses for the current quarter.
On Wednesday, the US market showed signs of turbulence, and stock index futures lowered by 1-2%.
Investors were cautious as Credit Suisse's shares plummeted by 21.95, nosediving to an all-time low after its biggest investor said it could not provide additional financial assistance to the lender.
In addition to new concerns about Credit Suisse, another reason for continued worries in Europe was the European Central Bank. Reportedly, it may make a significant interest rate hike of half a point at its meeting on Thursday.
If the ECB keeps the rate unchanged and the Fed follows suit next week, the fears about further bank turmoil will be dispelled until March 22.
Shares of recovering US banks resumed their downward trajectory. JPMorgan, Citigroup, and Bank of America dropped by 1.2-2.3%.
In addition, by the time the exchanges opened, the volatility of the US Treasury bond market remained at its highest level since the last major bank crash in 2009.
On Wednesday, the 2-year bond yield was about 4.3%, still 80 basis points lower than a week ago. At the same time, it is half a point above Tuesday's low.
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