US stocks fell by the most in two months and Treasury yields fell after disappointing First Republic Bank earnings and potential asset sales rekindled fears that the banking crisis is far from over yet.
The S&P 500 lost 1.6% of its value on Tuesday, with First Republic Bank stock dropping 49% sending shares of the regional bank to a record low.
Bloomberg News said the troubled bank, which saw higher-than-expected withdrawals in the first quarter, is considering liquidating up to $100 billion in long-term mortgages and securities as part of a broader rescue plan.
First Republic Bank's rescue deposits fail to assuage investor fears
The two-year Treasury yield fell to 3.94% as investors turned to US government debt in search of safety.
Meanwhile, technology stocks rose in after-hours trading, with Microsoft Corp. and Alphabet Inc. rising after posting better-than-expected earnings.
The Federal Reserve is still expected to raise interest rates by a quarter of a percentage point when it meets next week, despite mounting signs that the US economy is reeling after a year of aggressive monetary tightening. Data released on Tuesday revealed a decline in consumer confidence, while two regional reports on the manufacturing sector from the Federal Reserve showed disappointing results.
Ken McCatney, portfolio manager and head of the global equity team at William Blair, writes: US regional banks continue to face headwinds, and signs of crisis in the sector have not completely faded. He added that despite the instability in the financial sector, the US Federal Reserve and global central banks are still vigilant and alert in the face of rising inflation.
Expect a recession soon
“The Covid stimulus is over,” Kelly Bogdanova, Vice President and Portfolio Analyst at RBC Wealth Management, said in an interview. Now companies have to deal with a challenging economic environment after a series of hefty Fed rate hikes. From our point of view, we expect a recession.
The market is now betting on US interest rates peaking in June, followed by a cut to less than 4.5% by the end of the year.
US Federal Reserve officials are heading to raise interest rates and hinting at stopping tightening
Matt Malley, head of market strategy at Miller Tabak+, wrote in a morning note: Investors need to spend more time using simple logic...and adjusting their portfolios to the fact that a soft landing in the economy this year is a pipe dream.
Mali said that there is a growing consensus that a recession is approaching, especially with signs of a credit crunch in the results of the business of First Republic Bank and UBS. He asked: When was the last time that a real and large contraction in credit did not lead to a recession in the economy? The answer: That never happened.
The Bloomberg Dollar Index rose, and the Stoxx Europe 600 stock index fell 0.4%. Oil prices declined, while gold did not change significantly, iron ore continued its losing streak for the fifth day, and Bitcoin fell for the third day in a row.
