A strong rebound by financials helped Wall Street’s main indexes close firmly positive on Thursday, after media reports said some of the country’s largest lenders were in talks to aid First Republic Bank.
The technology sector also contributed to the gains, helping to boost the Nasdaq Composite to its strongest performance since Feb. 2, 2022.
The Canadian stock market also rose in a broad-based rally, reversing earlier losses, although gains trailed that of Wall Street.
The latest twist in the U.S. regional banks saga came on the heels of a 50 basis point rate hike by the European Central Bank, which earlier in the day had dampened investor sentiment already hurt by fears of a banking crisis.
Financial institutions, including JP Morgan Chase & Co and Morgan Stanley, confirmed earlier reports they would deposit up to $30 billion into First Republic Bank’s coffers to stabilize the lender.
“Banks are looking out for one another,” said Huntington Private Bank chief investment officer, John Augustine.
“We had two outliers go down and now they want to save what is considered a more mainstream bank.”
Shares of JP Morgan and Morgan Stanley were up 1.94% and 1.89% respectively, while the lifeline buoyed First Republic Bank, which gained 9.98%.
The positive sentiment spread to other regional lenders, with Alliance Bancorp and PacWest Bancorp advancing 14.09% and 0.7%, respectively, following a negative start.
The KBW regional banking index gained 3.26%, while the S&P 500 banking index advanced 2.16%, as both sub-indexes reversed losses.
Concerns about banks have rattled the stock market in recent days after the collapse of SVB Financial fueled contagion fears.
Meanwhile, U.S. Treasury Secretary Janet Yellen said the U.S. banking system remains sound and Americans can feel confident that their deposits will be there when needed.
U.S.-listed shares of Credit Suisse advanced after the bank secured a credit line of up to $54 billion from the Swiss National Bank to shore up liquidity and investor confidence.
The Toronto Stock Exchange’s S&P/TSX composite index rose 160.17 points, or 0.83%, to 19,539.01.
“Today marked a key reversal for the TSX,” said Brandon Michael, senior investment analyst at ABC Funds. “The problem is it’s heavy in financials and energy stocks, which tend to do well in a higher interest rate environment ... and as a result of the regional banking crisis, investors are recalibrating their interest rate expectations.”
“I expect the TSX to underperform its counterparts south of the border,” he added.
Bond yields rose on Thursday after making historic declines in recent days. Canada’s five-year bond yield was up 20 basis points by late afternoon, climbing back above 3%. Money markets are still pricing in at least one quarter-point cut in the Bank of Canada’s overnight rate by this summer, but only now see about 20% odds of a cut as soon as April. The ECB’s hike in interest rates may have persuaded some traders that global central banks won’t be rushed into easing monetary policy even as the banking crisis creates concerns.
Energy stocks on the TSX rose 0.5% after starting the day losing 1.9% as oil prices fell more than 1%.
Financials, the largest sector by weight on the Canadian index, gained 0.6% while Canada’s technology sector rose 1.7%.
Fortuna Silver Mines shed 6.2% after reporting a fourth-quarter loss, dragging the broader materials sector down 0.01%.
In Canada, wholesale trade increased 2.4% in January from December on higher sales in machinery, equipment and supplies, and the food, beverage and tobacco products subsectors.
In the U.S., the Dow Jones Industrial Average rose 371.98 points, or 1.17%, to 32,246.55, the S&P 500 gained 68.35 points, or 1.76%, to 3,960.28 and the Nasdaq Composite added 283.23 points, or 2.48%, to 11,717.28.
Data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to continued labor market strength, which could persuade the Fed to keep raising rates further.
Weak retail sales figures, as well as data showing a downward trend in producer inflation, on Wednesday had bolstered bets of a small rate hike by the Federal Reserve at its meet concluding on March 22.
Money markets are still largely pricing in a 25-basis-point rate hike by the Fed at its March 22 policy announcement.
Facebook parent Meta Platforms and Snapchat operator Snap Inc climbed 3.63% and 7.25%, after the U.S. administration threatened to impose a ban on rival TikTok.
Advancing issues outnumbered declining ones on the NYSE by a 2.80-to-1 ratio; on Nasdaq, a 1.95-to-1 ratio favored advancers.
The S&P 500 posted 4 new 52-week highs and 22 new lows; the Nasdaq Composite recorded 38 new highs and 235 new lows.
Reuters, Globe staff
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