Renewed Banking Concerns Contribute To Notable Pullback On Wall Street

After moving sharply higher over the course of Thursday’s session, stocks pulled back sharply during trading on Friday. The major averages all showed notable moves to the downside on the day, with the Nasdaq snapping a four-day winning streak.

The major averages finished the session off their worst levels but still firmly negative. The Dow tumbled 384.57 points or 1.2 percent to 31,861.98, the Nasdaq slid 86.76 points or 0.7 percent to 11,630.51 and the S&P 500 slumped 43.64 points or 1.1 percent to 3,916.64.

For the week, the Nasdaq soared by 4.4 percent and the S&P 500 jumped by 1.4 percent, but the narrower Dow edged down by 0.2 percent.

The pullback on Wall Street came as some traders looked to cash in on Thursday’s rally amid lingering concerns about turmoil in the financial sector.

Shares of First Republic Bank (FRC) showed a significant pullback on the day, plummeting by 32.8 percent after surging by 10.0 percent on Thursday.

The jump in the previous session came as a group of financial institutions agreed to deposit $30 billion in First Republic in an effort to express confidence in the banking system.

“U.S. stocks are weakening on fears that this week’s banking turmoil will lead to tighter lending standards that will cripple small businesses and eventually send this economy into a recession,” said Edward Moya, senior market analyst at OANDA.

He added, “The Fed’s rate hiking cycle was already feeling restrictive, so now that we have rising risks of more bank bailouts and even tighter credit standards, the growth outlook for the economy is rather bleak.”

Traders also continued to look ahead to the Federal Reserve’s monetary policy announcement next Wednesday.

CME Group’s FedWatch tool currently indicates a 43.2 percent chance the Fed will leave rates unchanged and a 56.8 percent chance of a 25 basis point rate hike.

In U.S. economic news, the Fed released a report showing U.S. industrial production was unexpectedly unchanged in the month of February.

The Fed said industrial production was unchanged in February following a revised 0.3 percent increase in January. Economists had expected industrial production to rise by 0.2 percent compared to the unchanged reading originally reported for the previous month.

A separate report from the University of Michigan showed consumer sentiment in the U.S. fell for the first time in four months in March.

The report said the consumer sentiment index slid to 63.4 in March from 67.0 in February. Economists had expected the index to be unchanged.

Surveys of Consumers Director Joanne Hsu noted the decrease was already fully realized prior to the failure of Silicon Valley Bank.

Meanwhile, the report showed decreases in both near-term and long-term inflation expectations, with year-ahead inflation expectations falling to the lowest level since April 2021.

Sector News

Banking stocks pulled back sharply after rebounding in the previous session, with the KBW Bank Index plunging by 5.3 percent.

Considerable weakness was also visible among oil service stocks, as reflected by the 3.0 percent nosedive by the Philadelphia Oil Service Index. The sell-off by oil service stocks came as the price of crude for April delivery tumbled $1.61 to $66.74 a barrel.

Airline stocks also showed a significant move to the downside on the day, dragging the NYSE Arca Airline Index down by 3.0 percent.

Brokerage, commercial real estate and biotechnology stocks also saw notable weakness, while gold stocks bucked the downtrend amid a spike by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Friday. Japan’s Nikkei 225 Index shot up by 1.2 percent, while China’s Shanghai Composite Index climbed by 0.7 percent.

Meanwhile, the major European markets showed notable moves to the downside on the day. While the U.K.’s FTSE 100 Index slumped by 1.0 percent, the German DAX Index and the French CAC 40 Index tumbled by 1.3 percent and 1.4 percent, respectively.

In the bond market, treasuries showed a substantial rebound after turning lower over the course of the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, plunged by 19 basis points to 3.395 percent.

Looking Ahead

The Fed’s interest rate decision is likely to be in the spotlight next week, overshadowing reports on new and existing home sales and durable goods orders.

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