Weekly market review
The stock market started and ended the week on a positive note, but there was some fluctuation in between as investors weighed concerns about the banking industry and the latest policy move from the Federal Reserve. Over the weekend, the Swiss National Bank brokered a UBS acquisition of Credit Suisse for a "takeunder" price of $3.2 billion, and the FR announced a coordinated central bank action to enhance the provision of U.S. dollar liquidity while reassuring investors about the strength of the U.S. banking system. There were also reports that the Treasury Department is considering ways to guarantee all bank deposits without congressional approval, and Treasury Secretary Yellen expressed readiness to intervene if necessary. Bank stocks reacted favorably but declined sharply after the FOMC voted to raise the target range for the fed funds rate and Fed Chair Powell gave his press conference. The Bank of England and other central banks followed suit later in the week by announcing rate hikes. By the end of the week, the market had largely recovered from its earlier downturn, with only a few sectors showing declines and others experiencing gains.
On Monday, the stock market saw a change in money flows from the previous week, with banks showing resilience following news of of the UBS acquisition. However, some anxiety around the banking industry persists, as evidenced by the decline in shares of First Republic Bank, which suffered sharp losses after being downgraded by S&P. On Tuesday, the stock market had a strong showing, with gains in bank stocks leading the positive action, following reports that the Treasury Department is looking at ways to guarantee all bank deposits without congressional approval. The S&P 500 closed above the 4,000 level ahead of Wednesday's FOMC decision.
On Wednesday, investors were waiting for the FOMC policy decision and Fed Chair Powell's press conference in the afternoon, causing a lackluster market performance. The major indices remained flat in the morning, with modest gains or losses, but ultimately closed the session sharply lower. The FOMC voted unanimously to raise the target range for the fed funds rate by 25 basis points, but the language of the directive and the Summary of Economic Projections suggested that the Fed might pause its rate hikes soon. This initially caused a positive reaction in the stock market, but when Fed Chair Powell spoke, bids disappeared, and stock prices fell due to broad-based selling interest, hastened by Powell's acknowledgment that Fed participants do not see rate cuts this year.
On Thursday, the stock market started on a positive note, attempting to recover some of Wednesday's sharp declines. However, the main indices went into negative territory in the late afternoon due to an uptick in selling interest without an obvious catalyst. Despite this, the main indices closed in the green, thanks to notable strength in some heavily-weighted components. The Bank of England and central banks from Switzerland, Norway, Hong Kong, and the Philippines hiked their policy rates, and buying interest was initially broad in nature, with mega-cap stocks in a leadership position. However, by the close, most mega-cap stocks maintained a leadership position while the broader market deteriorated. The Vanguard Mega Cap Growth ETF was up 1.1% versus a 0.3% decline in the Invesco S&P 500 Equal Weight ETF.
On Friday, the market ended the week on a positive note, but it wasn't initially that way due to concerns about the banking industry. Reports indicated that Deutsche Bank's cost of default insurance had increased to a four-year high, causing the S&P 500 to drop to 3,909 at its low for the day, below its 200-day moving average of 3,932. The Nasdaq and Dow also saw declines at their lows for the day. The market tone shifted significantly later on when European markets closed and panicky buying interest in the Treasury market subsided. Although Germany's DAX, the UK's FTSE 100, and France's CAC 40 all saw significant declines, many stocks moved higher during the rally that followed, with the S&P 500 closing above its 200-day moving average. Even Deutsche Bank, which had fallen by 8.3%, recovered some losses and ended the day down by only 3.1%. Both German Chancellor Scholz and European Central Bank President Lagarde tried to soothe investor concerns after the DB news, but the market remained under pressure.