The sudden collapse of Silicon Valley Bank, which marked the largest failure of a U.S. financial institution since the height of the Great Recession in 2008, has rattled financial markets and sparked fear of systemic tremors in the banking system.
Here’s a look at big swings across markets since the crisis began to take hold last week.
Shares of the SPDR S&P Regional Banking ETF KRE, +1.60%, which covers the regional banks segment of the broader S&P 500 SPX, +0.71% index, tumbled 10% on Monday. The index closed 4.4% lower on Friday, when California regulators intervened and officially shut SVB down, while placing it in receivership under the Federal Deposit Insurance Corporation, or FDIC.
Shares of the SPDR S&P Regional Banking ETF bounced Tuesday but remain down by more than 18% over the past five trading days after falling to its lowest since November 2020, according to Dow Jones Market Data.
See: Why bank ETFs are tanking despite regulators taking emergency steps to backstop depositors
U.S. stocks have seen choppy trade over the past five trading days as investor fretted over the health of the banking system and contagion risks following the collapse of SVB, Signature Bank, and Silvergate Capital.
The large-cap index S&P 500 remains off nearly 2% since March 8, when SVB first announced it had sold $ 21 billion worth of its mortgage-backed securities at a roughly $ 1.8 billion loss to meet clients’ withdrawal demand, as well as selling $ 2.25 billion worth of equity securities to bolster its financial position. That was the tipping point for the bank, raising red flags to its depositors and sending its stock price SIVB, tumbling.
See: How an inverted yield curve helped sink Silicon Valley Bank
The S&P 500 recovered some of the losses on Tuesday after three consecutive sessions of losses. The index traded 1.2% higher in early afternoon trading.
See: Banking-industry jitters could mean more pain for stocks as the Fed’s battle with inflation is dragged out
The bond market saw wild swings as SVB’s collapse saw market participants sharply readjust expectations for future Federal Reserve rate increases.
The yield on the 2-year Treasury note TMUBMUSD02Y, 4.179% jumped 33 basis points to 4.35% on Tuesday morning, and was on pace to score its largest one-day gain since 2009, after seeing its biggest daily drop since 1987 in the previous session, according to Dow Jones Market Data.
Markets are pricing in a 24% chance of no Fed rate hike this month and a 76% probability that policy makers will raise rates by another 25 basis points to between 4.75% and 5%, according to CME FedWatch tool. The chances of a 50-basis-point hike, which was priced in last week following remarks from Fed Chair Jerome Powell indicating the central bank was concerned over recent hot inflation data, are now seen at zero.
See: How an inverted yield curve helped sink Silicon Valley Bank
The ICE U.S. Dollar Index DXY, +0.02%, a gauge of the greenback’s strength against a basket of rivals, slumped 1.8% since March 8, as investors now bet the Fed will be less aggressive in raising interest rates to curb inflation. The dollar also closely tracks moves in the 2-year yield.
The dollar index edged up on Tuesday after February CPI report shows the inflation cooled modestly last month when measured year over year, in line with economists’ expectations, though the cost of food and shelter remained stubbornly high.
Gold futures
Gold futures GC00, -0.26% GCJ23, -0.26% finished at a five-week high on Monday in the aftermath of SVP collapse as the dollar weakened and Treasury yields declined. The most-active contact of the yellow metal jumped 5.2% since March 8, as investors piled into safe-haven assets despite President Joe Biden’s assurance that the banking system is still “safe” in the wake of the failures of SVB and Signature Bank.
Gold pulled back modestly on Tuesday.
Crude oil:
Oil futures tumbled with the U.S. benchmark West Texas Intermediate crude for April delivery CL00, -4.97% CL.1, -4.97% CLJ23, -4.97% falling 3.6% to trade near $ 72.12 a barrel ahead of the closing bell on the New York Mercantile Exchange Tuesday afternoon.
Analysts said recession fears, amplified by the collapse of SVB, overshadowed signs of increased demand from China. Crude failed to bounce alongside equities and other assets on Tuesday, trading with sizable losses and on pace for back-to-back declines.
The contract has declined by 4.9% in the past five trading sessions, according to Dow Jones Market Data.