VIX Spikes With 35% Plunge in Three American Banks: Markets Wrap
A fresh selloff in US regional banks roiled trading desks around the globe, with investors growing even more anxious about further vulnerabilities in the financial industry.
All 21 shares in the KBW Bank Index of financial heavyweights like JPMorgan Chase & Co. and Bank of America Corp. retreated. The $2.5 billion SPDR S&P Regional Banking exchange-traded fund was on pace for its lowest since September 2020. The S&P 500 headed toward its fourth straight day of losses. The drop in equities sent the Cboe Volatility Index (VIX) above the key 20 mark.
“The acute phase of bank turmoil may not be over, and policymakers need urgently to recognize that,” said Krishna Guha, vice chairman at Evercore ISI. “The problem is that their financial stability policy options are limited.”
The recent collapse of First Republic Bank and a raging selloff in regional banks has raised concern about vulnerabilities in the financial industry and bolstered fears of a lending crunch that could spur a hard landing. For firms with shakier finances that often borrow money not only through banks but also with high-yield debt, signs of stress in the system may inflict even more pain.
“Companies with the highest level of leverage aren’t necessarily the most prudent ones, so if we see a pullback in bank lending, they become harder to underwrite,” said Max Gokhman, head of MosaiQ Investment Strategy at Franklin Templeton Investment Solutions. “Investors recognize that if rates go down, they may not necessarily go down for the most-indebted companies and they may have a hard time getting additional financing when they need it most.”
In the run-up to the jobs report, data showed applications for US unemployment benefits rose by the most in six weeks while continuing claims fell. Even as the labor market starts showing some weakness, it’s still cooling at a much slower pace than other economic indicators in the wake of an aggressive tightening campaign by the Fed.
“In our view, the Fed is very unlikely to cut unless there’s severe financial stress and/or a recession is imminent — stocks likely go down in both scenarios,” said Chris Senyek at Wolfe Research.
A day after US officials signaled a potential pause tightening, the European Central Bank delivered the smallest interest-rate increase yet in its battle with persistently strong inflation but insisted that the move won’t be the last. The euro led losses among developed-currencies.
Later in the day, traders will be sifting through Apple Inc.’s quarterly earnings. After blowout results from Microsoft Corp. and Meta Platforms Inc. spurred huge rallies in their stocks, there are concerns the bar has been set too high for the iPhone maker.
Not only does Apple trade at an elevated valuation to peers, but it also comes with a weaker growth outlook. Second-quarter results are expected to show a 4.8% drop in revenue and a 5.8% slide in earnings, according to consensus analyst estimates, paving the way for a first year of declining sales since 2019.
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Some of the main moves in markets:
- The S&P 500 fell 0.6% as of 11:08 a.m. New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average fell 0.9%
- The Stoxx Europe 600 fell 0.5%
- The MSCI World index fell 0.4%
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.6% to $1.0998
- The British pound was little changed at $1.2566
- The Japanese yen rose 0.5% to 134.02 per dollar
- Bitcoin rose 1.2% to $28,864.47
- Ether rose 0.8% to $1,889.26
- The yield on 10-year Treasuries was little changed at 3.33%
- Germany’s 10-year yield declined five basis points to 2.20%
- Britain’s 10-year yield declined two basis points to 3.68%
- West Texas Intermediate crude was little changed
- Gold futures rose 1.1% to $2,058.50 an ounce
This story was produced with the assistance of Bloomberg Automation.