Markets Sink on Fears About Banks and Weaker Economic Outlook
The relative calm that met the collapse of First Republic Bank on Monday was shattered on Tuesday, with broad-based declines across industries.
Performance of regional bank stocks since start of 2023
Stocks slumped on Tuesday, as fears about the health of the financial sector after the collapse of First Republic Bank collided with broader anxiety stemming from signs of a weakening economy. Some regional banks, which have been under pressure since Silicon Valley Bank and Signature Bank failed in March, took sizable hits on Tuesday, shattering the relative calm that prevailed after First Republic was seized and sold to JPMorgan Chase by regulators on Monday. PacWest’s stock lost almost 30 percent of its value, its worst single-day drop since the height of the banking turmoil in March. Western Alliance sank about 15 percent, while Comerica and Zions also suffered double-digit percentage declines. The moves came alongside data showing U.S. manufacturers received fewer new orders than expected in March and a continued cooling of the labor market that month, with job openings falling and layoffs rising. Oil prices fell sharply, too, as the prospects of an economic downturn would likely cut energy demand. The price of a barrel of Brent crude, the international benchmark, dropped to around $75, near its lowest level for the year. The S&P 500 dropped 1.2 percent. Energy stocks fell by the most, with the sector as a whole down more than 4 percent, followed by financials, down 2.3 percent.
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“The bank problem is going to be ongoing,” said Andrew Brenner, the head of international fixed income at National Alliance Securities. “The idea that giving First Republic to JPMorgan would end this, I never believed it. There is a real fear of instability and an economic slowdown.” Some investors have made bumper returns betting on the drops in bank stocks, a practice known as short selling. Metropolitan Bank has seen the biggest increase in bearish bets over the past 30 days, according to data from S3 Partners. More than 10 percent of the bank’s stock is now lent to short-sellers. Nearly 20 percent of PacWest’s shares are out on loan, however that number has fallen slightly over the past month.