The Dow Jones Industrial Average closed on a negative note on Monday, as investors took into account the significant decline in Treasury yields while considering a less aggressive Federal Reserve, as well as the ongoing turmoil in the banking sector, despite the rescue of SVB.
The Dow fell by 0.3%, or 90 points, while the Nasdaq Composite increased by 0.5% and the S&P 500 decreased by 0.1%. Treasury yields witnessed a sharp drop, with the 2-year Treasury falling by more than 60 basis points, slipping below 4% to a six-week low as investors anticipate that the instability in the banking sector might force the Fed to reconsider its rate hike trajectory.
According to Scotia Economics, “Fed funds futures are reducing pricing for the size of a potential hike at that meeting to be closer to 25bps.” Prior to the banking sector’s turmoil over the last week, the market had been pricing in most of a 50bps move. Goldman Sachs believes that the Fed is unlikely to hike in March, citing the banking system’s stresses. The chances of the Fed pausing hikes at its meeting next week rose to 47%, according to Investing.com’s Fed Rate Monitor Tool.
In the aftermath of the Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) collapse, the US government and Federal Reserve rescued the beleaguered banks, agreeing to support all depositors. The Fed launched a new funding program that offers loans with maturities of up to a year.
However, the Fed’s support failed to stem the banking sector’s turmoil, as First Republic Bank (NYSE:FRC) plunged by more than 60%, while major banks such as JPMorgan Chase & Co (NYSE:JPM), BAC, and Citigroup (NYSE:C) also suffered sharp declines.
On the other hand, tech stocks aided the broader market recovery, supported by the decline in Treasury yields. Microsoft (NASDAQ:MSFT) rose by 2%, Apple (NASDAQ:AAPL) by more than 1%, followed by Meta Platforms (NASDAQ:META) and Google-parent Alphabet (NASDAQ:GOOGL).
In other news, Roku (NASDAQ:ROKU) closed lower after the company revealed on Friday that it had about $487 million, or 26%, of its cash reserves stuck at Silicon Valley Bank.
In deal news, Seagen (NASDAQ:SGEN) jumped more than 14% on the news that Pfizer (NYSE:PFE) will acquire the healthcare company to boost the latter’s cancer treatment portfolio.