Wall Street collapses as Credit Suisse triggers another bank sell-off

NEW YORK, March 15 (Reuters) – US stocks lost late Wednesday, but the Dow and S&P 500 still closed lower as problems at Credit Suisse revived fears of a banking crisis, lowering bets on a smaller US rate hike this month were overshadowed.

Benchmark indices gained some ground in late trading after Bloomberg reported that the Swiss government was in talks over options to stabilize the country’s banking giant. The Nasdaq composite closed with slight gains.

“We’re seeing movement in the headlines, but not serious headlines, which is good. … I don’t think we’re in the 2008-2009 phase when it comes to the contagion thing,” said Themis Trading, co-manager of trade, Joe Saluzzi.

Still, Credit Suisse’s troubles put more strain on the banking sector after US authorities relieved investors with contingency measures to avoid contagion following the collapses of SVB Financial (SIVB.O) and Signature Bank (SBNY.O).

Some investors believe aggressive US rate hikes by the Federal Reserve have created cracks in the financial system.

“They’ve cranked up the steepest, most dramatic pace we’ve seen since 1980 and so I think this could be the opportunity for them to pause,” said Jack Ablin, CIO of Cresset Capital.

US-listed shares of Credit Suisse hit a record low after its largest investor said it could no longer provide funding to the bank, causing defeat for European lenders and also putting pressure on US banks.

The sell-off ended Wall Street’s lukewarm rally in yesterday’s session.

“Yesterday’s recovery in financial stocks, the banks, made sense, but kind of the overriding factor here is a loss of confidence and it’s really fear of the unknown,” said Adams Funds CEO and senior portfolio manager Mark Stoeckle.

Data showed US retail sales fell 0.4% last month after growing 3.2% in January. Economists polled by Reuters had expected a contraction of 0.3%.

A separate report showed US producer prices fell unexpectedly in February, a day after another reading showed a moderation in consumer inflation. This fueled investor hopes that the Fed would slow its rate hikes.

US Treasury yields fell, with traders now expecting even odds of a 25 basis point rate hike and a pause at the Fed’s March meeting.

The Dow Jones Industrial Average (.DJI) fell 280.83 points, or 0.87%, to 31,874.57, the S&P 500 (.SPX) lost 27.36 points, or 0.70%, to 3,891.93 and the Nasdaq Composite (.IXIC) added 5.90 points, or 0.05%, to 11,434.05.

First Republic Bank (FRC.N) fell 21.37% while PacWest Bancorp PACW.O fell 12.87%, and trading was halted several times due to volatility, a day after the battered banks’ shares rallied sharply.

Shares of Western Alliance Bancorp (WAL.N) and banking and brokerage firm Charles Schwab Corp (SCHW.N) bucked the trend, closing up 8.3% and 5%, respectively. Both stocks ended early declines.

“In the financial markets, you just have to look at the markets that could weather it and don’t have that much investment risk in their portfolio,” said Jeffrey Carbone, managing partner at Cornerstone Wealth.

Major US banks, including JPMorgan Chase & Co (JPM.N), Citigroup (CN), and Bank of America Corp (BAC.N), fell, driving the S&P 500 banking index (.SPXBK) down 3.62%. The regional banking index KBW (.KRX) fell by 1.57%.

Most of the 11 major S&P 500 sectors were in the red, with energy (.SPNY) the worst performer, down 5.42%.

Falling issues outnumbered emerging issues on the NYSE by a ratio of 3.34 to 1; on Nasdaq, a ratio of 2.33 to 1 favored the fallers.

The S&P 500 posted 3 new highs in 52 weeks and 37 new lows; the Nasdaq Composite recorded 17 new highs and 379 new lows.

Reporting by David Carnevali; Edited by David Gregorio

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