Thursday’s session brought a strong rebound in the New York stock exchanges. Investors are hoping that the Fed and JPMorgan will save the banking system from further failures. Technology company prices also rose, supported by the strong decline in interest rates in the market.
The Dow Jones rose by 1.17% and ended Thursday at 32,246.55 points. The S&P 500 rose 1.76% to 3,960.28 points. The Nasdaq Composite Index rose 2.48% to 11,717.28 points.
Bank stocks, which were heavily overvalued, rose strongly in the last day. Shares of First Republic Bank rose more than 10% and Western Alliance Bancorp rose 14%. As in 1907, JP Morgan Chase is trying to stop the banking panic, which, according to market rumors, heads a banking consortium that is ready to invest 30 billion US dollars in First Republic Bank. The latter was mentioned among the “favorites” until the fall.
However, the burden of bailing out the banks falls primarily on the Federal Reserve, which on Sunday announced a new “liquidity” program for distressed lenders. It is a term bank financing program instrument under which you will lend money to banks against treasury securities collateral (Treasury bills, government agencies or MBS) denominated at face value, and not – according to current practice – at market rate.
According to JPMorgan Chase analysts, as part of the BTFP, up to $2 trillion could be transferred to banks. Even if it was used by only six threatening banks, it would still be worth about 460 billion US dollars. That’s quite a lot even for the conditions of the Federal Reserve’s balance sheet of more than four billion. Perhaps the situation is not so good, as the head of the Treasury Janet Yellen had to personally convince that “US deposits are safe.” If that were the case, there would be no need for such a letter.
In the evening from Wednesday to Thursday, support also came for Credit Suisse, which was in a deep crisis, and received a CHF50 billion loan from the Swiss Central Bank. This is a temporary measure, but it calmed short-term investors on Thursday. Are you also working next week? Nobody can guarantee that. Credit Suisse is one of 30 banks in the world deemed “too big to fail”, and its problems have caused market panic and a downturn in banking sector prices.
There was still a lot going on in the interest rate markets. The Fed futures market is priced in in that the Fed will only decide to raise the Federal Funds Rate (FFR) by 25 basis points at its meeting in March. Speculation regarding FFR cuts expected in the fall has also weakened slightly. Until Wednesday there was talk of 100 basis point cuts. Today it is “only” at 75 basis points.
However, seeing lower interest rates has positively affected the valuations of big tech companies. Shares of Microsoft rose by more than 4%, Apple by 4.4%, Amazon by about 4%, and Apple by 1.9%.
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