All Wall Street indexes slumped 1% Tuesday, led by a rout in small and mid-sized bank shares
All Wall Street indexes slumped 1% Tuesday, led by a rout in small and mid-sized bank shares amid rising fears over the health of regional banks just as the two-day Fed meeting got underway. S&P fell 48 points while Dow and NASDAQ plummeted 367 points and 132 points respectively.
The banking turmoil does not seem to end in the near future, even though regulators seized First Republic Bank and most of their assets were purchased by JPMorgan Chase. Smaller and mid-sized banks were responsible for some of the biggest losses, which have come under intense scrutiny as the financial system begins to crack under the weight of significantly higher interest rates. The biggest losers were Western Alliance Bancorp (15.4%), PacWest Bancorp (27.8%) and Comerica (12.4%).
The macro situation also continues to worsen with data from the Job Openings and Labour Turnover Survey (JOLTS) showing that the job openings have fallen to the lowest in nearly two years. One of the primary pillars supporting a slowing economy has been the employment market, and a decline in the same would probably signal a recession. Following Janet Yellen’s warning that the US government might hit its debt ceiling limitations as early as the beginning of next month, Treasury yields for June surpassed 5% while the 2-year note slumped 21 basis points to below 4%.
With all these factors in play, many traders predict that the Fed will likely stop raising interest rates after the 25-bps hike expected in the current meeting, and could start reducing them in the fourth quarter of this year. This would give Wall Street enough breathing room to stabilize and make the next move.
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