SVB collapse: Markets looking calmer as anxiety levels decline
Zachary Halaschak
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After a bit of panic following Silicon Valley Bank’s sudden failure, investors appear to be calming as markets stabilize.
Monday was frenetic, with certain bank stocks plunging by more than 70% at times. But on Tuesday, those same bank stocks recouped much of those losses as Wall Street digested the fact that the federal government isn’t letting depositors lose their money and will do what it can to prevent more bank closures.
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San Francisco-based First Republic Bank closed up 27% on Tuesday. Western Alliance Bancorp was up by some 14.3%. PacWest Bancorp was up by nearly 34% and Zions Bancorp grew by about 4.5%. KeyCorp ended trading on Tuesday at 7% in the green.
The SPDR S&P Regional Banking ETF, which tracks the performance of regional banks, finished up 2% after Monday’s heavy losses.
The broader stock market also had a bullish Tuesday, breaking a five-day losing streak. The Dow Jones Industrial Average closed up 336 points, while the S&P 500 and Nasdaq rose by 1.7% and about 2%, respectively.
The actions by regulators to stop the failure from becoming a contagion are a big part of why the markets are calming. In an effort to stop a run on other banks and a hit to the broader economy, the federal government announced that it would back all deposits in the banks, even those in excess of the FDIC’s $250,000 threshold.
The Federal Reserve also rolled out a new source of funding for banks that might face runs by depositors, called the Bank Term Funding Program.
Charlie Ripley, vice president of portfolio management at Allianz Investment Management, said that the backstop announcement “changed the sentiment, or shifted the tide, to some extent,” per CNBC.
“It starts with the immediate knee-jerk reaction, and then it takes some time to kind of dig into the details and understand the real risks and understand where the true exposures are,” he added.
Another indicator that shows fear and uncertainty are subsiding is the Chicago Board Options Exchange Volatility Index, better known as VIX but also as the “fear index.”
While the index was up more than 21% at one point on Monday, the VIX closed down more than 10.5% on Tuesday, showing less anxiety in the market. It is down nearly to what it was prior to the Friday announcement that SVB failed.
Easing inflation also drew a sigh of relief from investors.
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Tuesday’s consumer price index report, which tracked prices last month, came in lighter than the month before. Inflation had been running at 6.4% the month before and has now dropped to 6%. Persistently declining inflation would also lend credence to lighter interest rate hikes by the Federal Reserve down the road.
A hotter-than-expected CPI report would have likely buffeted the market and compounded the fears about the state of the U.S. financial system.