U.S. stocks got smoked on Wednesday after the Federal Reserve raised interest rates by a quarter percentage point amid a fast-moving banking crisis and Chair Jerome Powell suggested rate cuts were not in the picture this year.
The S&P 500 (^GSPC), the Dow Jones Industrial Average (^DJI) and the technology-heavy Nasdaq Composite (^IXIC) all dropped by about 1.6%.
U.S. government bond yields dipped. The benchmark 10-year Treasury yield slid to 3.4%, while on the front end of the yield curve, two-year yields dropped 3.9%. Oil prices gained, with WTI crude up to $70 a barrel.
The Federal Reserve’s policy-making committee, headed by Powell, took center stage Wednesday. The Federal Reserve raised its benchmark rate 0.25% to a 4.75%-5% target range, citing some additional policy firming may be appropriate. Additionally, the Fed said it would continue the same pace of reducing treasury and mortgage-backed security holdings.
“On net, we think the Silicon Valley Bank (SVB) episode and the fallout for the broader regional banking sector will work to slow credit, economic activity, and eventually inflation, resulting in the Fed needing to do less of the heavy lifting to tighten financial conditions,” Tiffany Wilding, PIMCO North American Economist, wrote in a statement following Powell’s press conference.
“As a result, we believe that the Fed is likely at the end of their hiking cycle. Nevertheless, pivoting to holding policy at restrictive levels, is different than starting the process to normalize or even ease policy. Indeed, the timing and speed of any rate cutting cycle will depend on how inflation and financial stability risks evolve overtime,” Wilding added.
To that point, the Fed’s latest dot plot forecasts — which maps out policymakers’ expectations for where interest rates expected to head in the near future — showed that rates will edge higher this year.
In his press conference, Powell said that he didn’t foresee rate cuts this year, though he told Yahoo Finance’s Jennifer Schonberger that he believes financial conditions have tightened.
Over the past several days, regulators have taken pains to emphasize the banking system is stable. On Tuesday, Treasury Secretary Janet Yellen said the U.S. banking system is “sound” but additional rescue arrangements “could be warranted” if new failures pose risks to financial stability.
However, on Wednesday, Yellen suggested in congressional testimony that the Federal Deposit Insurance Corporation (FDIC) was not considering providing “blanket insurance” for banking deposits. For his part, Powell said depositors “should assume that their deposits are safe.”
Bank sentiment dipped on Wednesday after surging Tuesday. Regional bank stocks including First Republic Bank (FRC), PacWest Bancorp (PACW), Western Alliance Bancorporation (WAL), Regions Financial (RF), and Zions Bancorporation (ZION) all traded lower amid continued angst in the sector.
Separately, PacWest said it secured $1.4 billion in new cash from a firm backed by Apollo. The regional lender saw deposits drop 20% since the start of the new year.
Big bank stocks also slipped, as Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) all traded down Wednesday.
Meanwhile, despite a $30 billion cash lifeline last week to First Republic, news reports are swirling that Wall Street executives and US officials are in talks over a new rescue plan to restore investor confidence and potentially ensure a buyer. JPMorgan Chief Executive Jamie Dimon is scheduled to meet with Lael Brainard, the director of the White House’s National Economic Council. However, the agenda hasn’t been confirmed yet, Reuters reported.
UBS Group AG (UBS) has offered to buy back 2.75 billion euros ($3 billion) worth of bonds that were issued days before the weekend’s forced marriage between UBS and Credit Suisse, Bloomberg reported. At the same time, Credit Suisse (CS) was ordered by the Swiss government to temporarily suspend certain forms of variable bonuses for its employees.
Here are other trending tickers on Yahoo Finance:
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Nike (NKE): The sports apparel brand announced a dramatic fiscal third-quarter revenue beat of 8%, while earnings per share came in higher at 79 cents compared to expectations of 54 cents. However, shares dropped nearly 5% Wednesday.
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GameStop (GME): The meme stock reported after hours Tuesday sales came in 2% ahead of estimates. The retailer posted a surprise adjusted earnings per share of 16 cents compared to analysts’ expectations of a loss of 15 cents per share.
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AMC Entertainment Holdings, Inc. (AMC): Shares are trading higher amid the strength posted by GameStop earnings. Both stocks often move in tandem, as this duo is popular among retail investors who tend to heavily short stocks.
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Coinbase (COIN): Bitcoin’s rally is fueling a bounce in shares of Coinbase amid reignited interest in digital assets.
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XRP USD (XRP-USD): The altcoin ripple has surged 13% in the past 24 hours to $0.45 amid the ongoing case between XRP and the Securities and Exchange Commission (SEC) in the US.
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Carvana Co. (CVNA): The online used-car dealer expects a smaller adjusted loss than expected for the first quarter.
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SoFi Technologies, Inc. (SOFI): The digital personal finance company said it will let members increase access up $2 million with their checking or savings accounts.
On the earnings calendar, results from Chewy (CHWY) and KB Home (KBH) are set for release on Wednesday.
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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