Stock Market News for Mar 23, 2023

Wall Street closed sharply lower on Wednesday, dragged down by financial stocks. The Federal Reserve delivered a widely expected quarter-point interest rate hike from its March meeting, but comments made by the treasury secretary kept investors on tenterhooks. Regional banks led the slide. All three major indexes ended in the red.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 1.6%, or 530.49 points, to close at 32,030.11. All components of the 30-stock index ended in negative territory.

The S&P 500 lost 1.7% or 65.9 points to close at 3,936.97. All 11 broad sectors of the benchmark index ended in negative territory. The Real Estate Select Sector SPDR (XLRE), the Financials Select Sector SPDR (XLF) and the Consumer Discretionary Select Sector SPDR (XLY) fell 3.7%, 2.3% and 2.2%, respectively.

The tech-heavy Nasdaq slid 1.6% or 190.15 points to finish at 11,669.96.

The fear-gauge CBOE Volatility Index (VIX) was up 4.1% to 22.26. A total of 11.8 billion shares were traded on Wednesday, lower than the last 20-session average of 12.7 billion. Decliners outnumbered advancers on the NYSE by a 2.25-to-1 ratio. On Nasdaq, a 2.57-to-1 ratio favored declining issues.

Fed Raises Interest Rates by 25 Basis Points

On Wednesday, the Fed announced a much anticipated 25 bps interest rate hike at the conclusion of its March FOMC meeting, indicating that going forward it may pause further increases in borrowing costs as a direct reaction to the recent collapse of two U.S. banks. Fed Chair Jerome Powell, in a bid to reassure investors, said that bad management was the root cause of the Silicon Valley Bank’s failure, and it did not indicate core weaknesses in the banking system. The FOMC policy statement also said that the banking system in the country remains sound and resilient.

Powell went on to say that the committee had even considered a complete rate-hike pause, and in the near future, it might be an eventuality even as the central bank strives hard to combat inflation. Usually, such an outlook would infuse spirit into the stock market, but the very fact that Powell pointed out the recent failure of U.S banks as the root cause behind demand cooling off, failed to lift investor mood.

Regional Banks Lead the Session’s Slide

Also not helping were comments made by Treasury Secretary Janet Yellen, who, in her deposition in front of the Federal Deposit Insurance Corporation, said that the government was not considering "blanket insurance" for deposits arising from recent problems faced in the sector. She also said that the Treasury Department has not considered anything to do with asset guarantees.

Yellen’s comments had an immediate and adverse impact on the regional banks, which were seen to recover over the last couple of days in the hope of further bail-outs from the government. But with clear indications from a senior government official about limited help, the rebound took a serious hit, and the freefall resumed.

Shares of the beleaguered First Republic Bank FRC slid 15.5 % amid worries that it may need to downsize and that government support might not be coming. The contagion spread readily throughout the financial sector, and regional banks became the biggest drag in the stock market on Wednesday. Banking ETFs reversed a two-day rebound, with The S&P Regional Bank ETF (KRE) ending Wednesday’s trading session more than 5% lower. Tremors were also felt in finance-heavy sectors like real estate and non-essential areas like consumer discretionaries.

Consequently, shares of PacWest Bancorp PACW and Western Alliance Bancorporation WAL lost 17.1% and 5%, respectively. Both carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Economic Data

Per a government report, for the week ending Mar 17, 2023, commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.1 million barrels from the previous week.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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