Stock market today: Markets steady after latest bank failure

AP , Monday 1 May 2023

Early Wall Street trading is relatively subdued Monday in the wake of the third U.S. bank failure in less than two months.

First Republic Bank
In the file photo, a pedestrian walks past a First Republic Bank in San Francisco on April 26, 2023. AP

The latest historic failure for the U.S. banking industry is making few waves so far, and stocks are relatively steady in early trading on Wall Street. The S&P 500 was little changed Monday after regulators seized First Republic Bank and sold off most of it in hopes of preventing more turmoil in the industry.

The Dow Jones Industrial Average was up 56 points, or 0.2%, while the Nasdaq composite was off 0.2%. First Republic has been in the spotlight for nearly two months, as investors bet on whether it would be next to topple following March’s failures of Silicon Valley Bank and Signature Bank.

Futures for the S&P 500 and the Dow industrials shifted between small gains and losses, essentially unchanged before the opening bell.

There are banking holidays around the globe Monday limiting some trading, but early reaction to the seizure of troubled First Republic Bank, which was sold on Monday to JPMorgan Chase Bank, appears orderly.

San Francisco-based First Republic, once highly respected because of it's wealthy client base, came under signficant strain due to surging interest rates. It invested in usually safe long-term bonds that can lose value when rates climb if they are sold before they mature. Many of the bank's wealthy clients pulled their money First Republic after the collapse of Silicon Valley and Signature banks, creating a modern day bank run. First Republic becomes the second-biggest bank failure in U.S. history, behind only Washington Mutual, which collapsed at the height of the 2008 financial crisis and was also taken over by JPMorgan.

First Republic’s stock closed at $3.51 on Friday, a fraction of the roughly $170 a share it traded for a year ago. On Monday, it fell another 45% to $1.90 a share in premarket trading before shares were halted. JPMorgan Chase & Co.'s shares gained nearly 4% to $143.44 a share.

In Asian trading Monday, Tokyo's Nikkei 225 index added 0.9% to 29,123.18 and the S&P/ASX 200 in Sydney advanced 0.5% to 7,344.20. Other markets in the region were closed as were European markets.

On Friday, the S&P 500 gained 0.8%, clinching a second straight winning month. The Dow Jones Industrial Average climbed 0.8% and the Nasdaq composite gained 0.7% to 12,226.58.

Most companies so far this reporting season have beaten expectations, though they were modest given forecasts that the economy may tip into recession as it slows under the weight of higher interest rates meant to get inflation under control.

It's another earnings-heavy week for Wall Street, with Apple, Pfizer, Ford and Starbucks among the companies reporting results in the coming days.

Based on recent economic reports, traders are betting the Federal Reserve will raise interest rates again at a meeting next week and possibly again in June.

A report on Friday said the inflation measure that the Fed prefers to use came in close to expectations for March, but is well above the target. Also, wages rose more during the first three months of the year than economists expected, potentially keeping inflation more entrenched.

The Fed has raised its key overnight interest rate to its highest level since 2007, up from its record low, following a barrage of hikes since early last year. Together, they’ve already slowed the economy’s growth down to an estimated 1.1% annual rate at the start of this year.

They’ve also caused cracks in the banking system.

The Federal Reserve released a report Friday blaming the failure of Silicon Valley Bank on a combination of poor bank management, weakened regulations and lax government supervision.

In other trading Monday, U.S. benchmark crude oil tumbled $1.69 to $75.09 per barrel in electronic trading on the New York Mercantile Exchange. It gained $2.02 on Friday.

Brent crude, the standard for pricing for international trading, shed $1.58 to $78.75 per barrel.

The U.S. dollar rose to 136.84 Japanese yen from 136.24 yen. The euro weakened to $1.1010.

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