Schwab Market Update

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U.S. stocks ended the day higher, as the financials sector bounced back amid the recent choppiness in the markets. Meanwhile, uncertainty remained regarding whether the turmoil will impact the Fed's monetary policy decision on Wednesday. Banking stocks continued to be in focus, as UBS Group agreed to acquire Credit Suisse for a little over $3.0 billion, while the Fed and five other major central banks took action to increase the availability of liquidity for the financial system. Treasury yields were higher, and the U.S. dollar was lower, while crude oil and gold prices gained ground. Asia finished broadly lower, and markets in Europe were rose sharply, as investors around the world contend with the latest updates surrounding global banks.

The Dow Jones Industrial Average rose 383 points (1.2%) to 32,245, the S&P 500 Index advanced 35 points (0.9%) to 3,952, and the Nasdaq Composite advanced went up 45 points (0.4%) to 11,676. In moderate volume, 4.2 billion shares of NYSE-listed stocks were traded, and 4.8 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.89 to $67.82 per barrel. Elsewhere, the gold spot price increased $10.70 to $1,984.20 per ounce, and the Dollar Index declined 0.4% to the downside to 103.33.

The banking sector remained in focus in the wake of last week's report that some of the nation’s largest banks have agreed upon a plan to deposit as much as $30 billion in an attempt, supported by the U.S. government, to stabilize First Republic Bank (FRC). The turmoil has fostered severe volatility in the markets and fueled concerns about contagion in the financial markets. Meanwhile, the Treasury Department, the Fed and Federal Deposit Insurance Corporation (FDIC) have enacted several measures to contain the issue.

The turbulence originated in the U.S. banking sector after the failures of SVB Financial Group (SIVB), and crypto-related Silvergate Capital Corp. (SI), and the closure of Signature Bank (SBNY) this month. The anxiety made its way across the pond as Credit Suisse Group AG's (CS) top shareholder, the Saudi National Bank, said it will not provide more capital assistance. However, UBS Group AG (UBS $19) agreed to take over the Swiss lender for $3.2 billion. Meanwhile, a plethora of global central banks, including the Fed, have announced coordinated action to inject liquidity into the financial system by increasing the frequency of dollar swap operations to daily from weekly.  

For a look at what our experts think about the recent stock market drop, read our latest Schwab Market Perspective: Ups and Downs, which discusses how market surprises have forced investors—and the Federal Reserve—to re-evaluate yet again. Also, Schwab's Chief Fixed Income Strategist Kathy Jones offers her latest article, Bank Turmoil: What Does It Mean for Fed Policy? Kathy notes that the situation may relieve some pressure on the Federal Reserve, possibly leading to a pause or slowing in its current rate-hike cycle. You can follow Kathy on Twitter @KathyJones.

Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Caveat Emptor: Important Market Shifts Underway, how given the topsy-turvy nature of the market thus far in 2023, it remains crucial for investors to know what they are buying—especially as it relates to growth, value, and quality. You can follow Liz Ann on Twitter: @LizAnnSonders.

Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.

Treasury yields higher, Fed decision set for this week

Treasury rates were rising, as the yield on the 2-year note was up 14 basis points (bps) to 3.96%, while the yields on the 10-year note and the 30-year bond gained 10 bps to 3.49% and 3.68%, respectively.

Bond yields are rebounding somewhat after seeing pressure recently as the markets wrestle with uncertainty regarding if the Fed may change its tightening campaign a bit sooner than expected in the wake of the recent turbulence in the banking sector.

Schwab's Kathy Jones notes in her article, How to Prepare for Landing, how a "soft landing," with declining inflation but positive growth, would be ideal. However, she points out that turbulence appears likely. Kathy offers insight on how to handle it.

Today's economic calendar was void of any major releases today and will be a bit lighter this week. However, its magnitude is of importance, as the headlining event will likely be the Federal Open Market Committee's (FOMC) monetary policy decision set for Wednesday, March 22. With the turmoil in the banking sector over the past week, the notion has been floated that the FOMC could possibly pause its rate hike campaign, but expectations are for a 25-bp rate hike. Economic projections and the Fed's "dots plots"—a gauge of committee members' forecasts of future rate actions—that will be released with the central bank's announcement are also likely to garner heightened scrutiny.

The lone report on tomorrow’s economic calendar will be existing home sales for February, with economists projecting a 5.0% m/m rise to an annual rate of 4.17 million units.

Europe higher amid some consolidation in banking sector

Stocks in Europe rose as the disorder in the banking sector continued to garner attention. The latest developments on the global banking front came as UBS Group agreed to acquire Credit Suisse and a plethora of key central banks, including the Fed, European Central Bank (ECB), Bank of England and Bank of Japan moved to increase availability of liquidity in the financial system. The banking sector has come under pressure recently and has caused some investors to speculate that the Fed may pause its aggressive rate hike campaign this week, but expectations remain that the Central Bank will go ahead with a 25-bp hike, according to Bloomberg. Last week, the ECB moved forward with a 50-bp increase, noting that "inflation is projected to remain too high for too long," but adding that it is monitoring current market tensions closely and stands ready to respond as necessary to preserve price and financial stability.

Schwab’s Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his latest article, Waves of Inflation, how although inflation may be receding, intermittent waves of price increases may cause investor uncertainty about the direction of economic growth and central banks' policy response. You can follow Jeff on Twitter: @JeffreyKleintop. In light economic news in the region, German producer price inflation declined by a smaller amount than anticipated for February, and was higher than expected year-over-year. The euro and the British pound increased versus the U.S. dollar, while bond yields in the Eurozone were mostly lower, and rates in the U.K. nudged slightly higher.

The U.K. FTSE 100 Index was up 1.1%, France's CAC-40 Index rose 1.6%, Germany's DAX Index gained 1.3%, Spain's IBEX 35 Index advanced 1.5%, Italy's FTSE MIB Index climbed 1.8%, and Switzerland's Swiss Market Index traded 0.6% higher.

Asia lower as banking sector worries remain

Stocks in Asia were lower across the board, as jitters surrounding the global banking sector remained even as UBS agreed to acquire Credit Suisse in Europe and a host of global central banks took measures to boost the availability of liquidity in the financial markets. Uncertainty persists regarding the ultimate impact on the global financial market system. The turmoil has also caused some speculation that this may prompt the Fed to back off of its aggressive monetary policy campaign, but expectations are still calling for the Central Bank to raise rates by 25 bps on Wednesday. The European Central Bank went ahead with a 50-bp rate increase last week, while the Bank of Japan (BoJ) left rates unchanged earlier this month, and over the weekend China left its 1-year and 5-year loan prime rates unchanged. Schwab's Jeffrey Kleintop discusses in his article, Are You Focused on the Wrong Central Bank?, how while investor attention is on the Fed, changes at the Bank of Japan might bring shifts to the economic environment, impacting the global markets.

Japan's Nikkei 225 Index fell 1.4%, with the yen rising versus the U.S. dollar. China's Shanghai Composite Index decreased 0.5%, and the Hong Kong Hang Seng Index dropped 2.7%. Meanwhile, Australia's S&P/ASX 200 Index declined 1.4%, South Korea's Kospi Index lost 0.7%, and India's BSE Sensex 30 Index traded 0.6% lower.

Tomorrow’s international economic calendar will introduce the minutes from the Reserve Bank of Australia’s latest monetary policy meeting. We will also get South Korea’s PPI, the U.K.’s public sector net borrowing, and the Eurozone’s economic sentiment.

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