A man bikes past the New York Stock Exchange, Wednesday, Sept. 21, 2022, in New York. (AP Photo/Peter Morgan)
By Stan Choe
Stocks rose on Wall Street Monday after regulators pushed together two huge banks over the weekend and made other moves to build confidence in the struggling industry.
The S&P 500 climbed 34.93 points, or 0.9%, to 3,951.57. The Dow Jones Industrial Average gained 382.60, or 1.2%, to 32,244.58, and the Nasdaq composite added 45.02, or 0.4%, to 11,675.54.
Much attention has been on banks because they may be cracking under the pressure of much higher interest rates. Swiss banking giant UBS said Sunday it would buy its troubled rival Credit Suisse for almost $3.25 billion in a deal quickly put together by regulators. Credit Suisse has been battling a unique set of problems for years, but they came to a head last week as its stock price tumbled to a record low.
A group of central banks stretching from the United States to Japan also announced coordinated moves on Sunday meant to ease strains in the financial system. They should allow banks more access to U.S. dollars if needed, in an echo to a practice widely used in prior crises.
The moves don't mean the banking industry's crisis is over, but “it’s taken one of the troublesome aspects off the table,” said Ryan Detrick, chief market strategist at Carson Group.
The late Sunday announcements by regulators may be reminiscent of the 2007-08 financial crisis that wrecked the global economy, but many investors see big differences between then and now.
“The market is trying to digest: Is this just a few bad financial companies that have really made some bad decisions, or is the whole thing a house of cards?" Detrick said. "We’re optimistic that it’s multiple banks in a bad situation but not the entire system.”
In the U.S., most of the attention has been on smaller and mid-sized banks on fears that falling trust could push their depositors to pull their money all at once. That’s what’s called a bank run, and such a move could topple them.
First Republic Bank has been at the center of investors’ crosshairs in the hunt for the industry’s next victim following the second- and third-largest U.S. bank failures in history. Its shares fell 47.1% after S&P Global Ratings cut its credit rating for a second time since Wednesday.
S&P said it could lower the rating even further despite a group of the biggest U.S. banks announcing last week they would deposit $30 billion in a sign of faith in First Republic and the larger banking industry.
While that money certainly helps, “it may not solve the substantial business, liquidity, funding, and profitability challenges that we believe the bank is now likely facing,” the credit-ratings agency said.
Stocks of other smaller- and mid-sized banks, meanwhile, were much stronger.
New York Community Bancorp jumped 31.7% after it agreed to buy much of Signature Bank in a $2.7 billion deal, the Federal Deposit Insurance Corp. said late Sunday. Signature Bank became the industry’s third-largest failure earlier this month after regulators seized it.
Much of the rest of the U.S. stock market also pushed higher, but how long that lasts is a question mark. A huge decision is looming on the calendar by the Federal Reserve.
The U.S. central bank will announce its latest move on interest rates Wednesday. For a while, Wall Street was betting it would reaccelerate its hikes because of how stubborn high inflation has remained.
Higher rates can undercut inflation by slowing the economy, but they raise the risk of a recession later on. They also hurt prices for stocks and other investments. That was one of the factors hurting Silicon Valley Bank, which earlier this month became the second-biggest U.S. bank failure in history. Bonds owned by it and other banks have seen their prices fall as interest rates rose sharply.
The Fed has already pulled its key overnight rate to a range of 4.50% to 4.75%, up from virtually zero at the start of last year.
But all the recent stress in the banking system has pushed Wall Street to believe the Fed likely won’t pick up the pace again on its rate hikes.
Many economists and investors were already expecting at least a mild recession to hit the U.S. economy given all the recent rate increases. The worry is that strains for regional banks could raise the risk higher. That's because of how important such banks are in giving loans to smaller- and mid-sized companies to grow.
Drastic recalibrations by investors for what the Fed will do with interest rates have caused historic swings in the bond market. Yields there have plunged since earlier this month.
Consider the two-year Treasury, which tends to move closely with expectations for the Fed. Its yield was above 5% earlier this month, at its highest level since 2007, after data on inflation and other measures of the economy kept coming in higher than expected.
Last week it plunged well below 4%, which is a massive move for the bond market. It rose to 3.97% from 3.84% late Friday.
In markets abroad, stocks rose in Europe after falling across much of Asia.
At-home medical labs company Getlabs raised $20 million in a Series A round, led by Emerson Collective and the Minderoo Foundation. Getlabs aims to be the boots-on-the-ground partner to telehealth. The company says more than 70% of medical decisions still require collecting diagnostic tests in person, and that it fills that void by delivering health care directly to their patients' homes. Founder & CEO of Getlabs Kyle Michelson joined Cheddar News' Closing Bell to discuss.
The White House laid out plans for a $5 billion investment into a national network of charging stations to ease EV driving anxiety. Bruce Brimacombe, CEO of EV infrastructure GOe3 joined Cheddar News to discuss how much needs to be done for drivers to get over the fear of running out of energy. "People need to be able to do what they're doing now," he said. "But that is the way that if you're going to buy an electric car, you got to feel like you're not changing your world." Brimacombe noted that building out the infrastructure between cities was GOe3's own focus.
U.S. automakers are saying that the blockade of the Ambassador Bridge, a crucial border crossing between the U.S. and Canada, is affecting their production lines. Michelle Krebs of Cox Automotive warns that the disruption "couldn't come at a worst time," amid chip and labor shortages in Detroit.
AND DETROIT-BASED AUTO MAKERS SAY THEY ARE SHUTTING DOWN PLANTS OR SCALING BACK PRODUCTION BECAUSE OF PARTS SHORTAGES.
Sonos reported better than expected Q1 earnings amid chip shortage with the release of its Roam product. CFO Brittany Bagley joined Cheddar News to discuss the smart speaker maker's successful report and its plans to hit its 2024 targets as people leave their homes as pandemic restrictions ease. "Even as people head out in the world, it doesn't mean they don't like to listen to music at home or watch a streaming movie at home," she said. "So there's still a real role for us and our products in peoples lives, sort of, no matter what else they're doing."
Lynn Martin, president of the NYSE Group, explains why investors at the New York Stock Exchange should still feel confident despite the recent Wall Street volatility and discusses the landscape for 2022 when it comes to IPOs and retail investors.
The merger of WarnerMedia and Discovery received Justice Department approval on Wednesday, and Patty Hirsch, EVP of consumer and digital platforms at WarnerMedia, joined Cheddar News to discuss current and future offerings from the media conglomerate that will control both HBO Max and Discovery+. "Content really drives so much, and CNN has always had a very long history of creating an incredible documentaries, incredible content … and this service I think is going to ultimately provide the kind of content consumers want and the kind of content that consumers are going are going to pay for," she said. Hirsch also discussed NFTs in use through its Turner Sports and DC brands.
Black entrepreneurs lead the way in the creation of new businesses, but they often cannot get the necessary funding to get their business off the ground. The Fearless Fund is on a mission to change that, and help Black business owners get venture capital. The fund also offers a unique grant program meant to help entrepreneurs with growth, peer coaching, and more, including grants between $10,000 and $20,000. Arian Simone, Co-Founder and General Partner of Fearless Fund, joins Closing Bell to discuss the Fund's mission, how it helps Black entrepreneurs, and more.
Multinational food company Kellogg’s reported an earnings beat amid supply chain issues and an extended labor strike. Kellogg’s Chairman and CEO c joined Cheddar News to discuss overcoming the obstacles and what's to come for the company. "The first half of the year is really going to be one about rebuilding inventory, and into the second quarter, starting to reestablish promotional activity for our customers and our consumers," Cahillane said. "And then the back half of the year, obviously, we're really much more back in business, and we expect to exit the year with our business in cereal being just as strong as it's ever been."
Sting has sold his catalog of more than 600 songs for $300 million to Universal Music. The deal gives the label the rights to all of his work, including “Every Breath You Take," as well as all future royalties.
Miller Lite is opening the first branded bar in the metaverse, by way of Decentraland, as a way to advertise during the Super Bowl this year without buying an expensive TV commercial slot. Sofia Colucci, global vice president of Miller Family of Brands, joined Cheddar to talk about the new marketing concept. "We have a lot of great partnerships with NFL teams throughout the year but were shut out of advertising during the Super Bowl game, so this pushes us to think creatively and also think of what feels really relevant right now," Colucci said. "There's no question that there's a lot of excitement with the metaverse, and we wanted to participate but in a way that felt right for Miller Lite."
