Monday’s market moves were lukewarm: The Dow Jones Industrial Average inched up 0.17%, the Nasdaq Composite slipped 0.17% and the S&P 500 was little changed. But that’s because the mood was one of anxiety, rather than calm.
Regional banks managed to avoid losses amid renewed fears of banking instability. PacWest Bancorp rose 3.65%, Western Alliance Bancorp eked out a 0.6% gain and Zions Bancorp added 2.1%. Those are reassuring, if not astounding, numbers.
But those numbers have to be put in context. Earlier in the day, PacWest surged nearly 30% after the regional bank announced Friday evening that it was planning to raise capital. So the story on Monday isn’t so much of confidence in regional banks, but continued volatility. Indeed, the SPDR S&P Regional Banking ETF (KRE) fell by 2%.
Banking fears brought about by high interest rates, then, still persist. The Federal Reserve’s most recent Financial Stability Report, published Monday, confirmed that one of respondents’ biggest economic fears is “banking-sector stress.” Additionally, the report identified money market funds, stable coins and hedge funds as having higher potential for running into trouble.
Other concerns about the economy, the report said, included “persistent inflation and tighter monetary policy.” April’s consumer price index report, expected Wednesday, and the producer price index on Thursday will either reinforce or dispel some of those fears.
And then there’s the specter of the U.S. defaulting on its debt. In the event that Congress doesn’t reach an agreement to raise the ceiling, there would be an “economic catastrophe,” U.S. Treasury Secretary Janet Yellen told CNBC Monday. We’ll soon find out whether Washington can avert the “financial chaos,” in Yellen’s words — President Joe Biden meets top lawmakers Tuesday to discuss the issue.
Despite markets’ “tepid approach on Monday,” then, “a look beneath the surface reveals a bit more agitation than that first glance might reveal,” as the Goldman Sachs trading desk puts it. We might just be in the eye of a storm.
