Thursday’s session brought a solid rebound on the New York stock exchanges. Investors hope that the Fed and JP Morgan will save the banking system from further failures. Technology companies also gained in price, which was supported by a strong decline in market interest rates.
The Dow Jones gained 1.17% and ended Thursday at 32,246.55 points. The S&P 500 gained 1.76% to 3,960.28 points. The Nasdaq Composite was up 2.48% to 11,717.28 points.
Stocks of banks drastically overvalued in the last day went up strongly. First Republic Bank’s shares rose by more than 10% Western Alliance Bancorp by 14%. As in 1907, JP Morgan Chase is trying to stop the bank panic, which according to market rumors is at the head of a banking consortium ready to invest USD 30 billion in the First Republic Bank. The latter was mentioned among the “favorites” until the fall.
However, the burden of bailing out the banks rests primarily with the Federal Reserve, which on Sunday announced a new “liquidity” program for distressed lenders. It is about the Bank Term Funding Program instrument under which it will lend money to banks against the collateral of treasury securities (Treasuries, government agencies or MBSs) valued at nominal value, and not – in accordance with the current practice – at the market price.
According to JPMorgan Chase analysts, as part of the BTFP, up to two trillion dollars can go to banks. Even if it is used only by the six most threatened banks, its amount will amount to approximately USD 460 billion. That is quite a lot even for the conditions of the Fed’s balance sheet of over four billion. The situation is probably not very good, since the head of the Treasury Department Janet Yellen had to personally convince that “American deposits are safe.” If that were the case, there would be no need for such a message.
On the night from Wednesday to Thursday, support also came for Credit Suisse, which was in deep crisis, and received a CHF 50 billion loan from the Swiss central bank. This is a temporary measure, but it calmed investors in the short term on Thursday. Will it also work next week? Nobody can guarantee that. Credit Suisse is one of 30 banks in the world considered “too big to fail”, and its problems caused panic in the market and a decline in the banking sector’s quotations.
There was still a lot going on in the interest rate markets. The fed futures market is pricing in that the Fed will only decide to raise the federal funds rate (FFR) by 25 basis points at its March meeting. Speculations related to FFR reductions expected for the autumn have also slightly weakened. Even on Wednesday there was talk of cuts of 100bp. Today it’s “only” at 75 bp.
Nevertheless, the vision of lower interest rates has positively influenced the valuations of big tech companies. Microsoft shares gained over 4%, Alpabet 4.4%, Amazon by almost 4% and Apple by 1.9%.
