U.S. stocks reversed losses in late afternoon trading on Friday as markets cap off a bumpy week following the Federal Reserve’s interest rate decision on Wednesday and further pressure in the banking sector.
The S&P 500 (^GSPC), which fell as much as 1% in early Friday trading, the most in a week, flipped into postive territory later in the session. The Dow Jones Industrial Average (^DJI) and technology-heavy Nasdaq Composite (^IXIC) did the same, trading relatively flat ahead of the close.
WTI crude oil (CL=F), which was down 3% in earlier trading, pared losses by 2% to settle at $69.20 a barrel, putting oil back near its lowest levels in nearly two years. Brent crude (BZ=F) dipped about 1% to settle at just around $75 a barrel.
The pressure in oil comes after Energy Secretary Jennifer Granholm told lawmakers on Thursday refilling the country’s Strategic Petroleum Reserve (SPR) may take several years and that it will be “difficult” to utilize the current decline in oil prices.
U.S. government bond yields extended losses by mid-afternoon with the benchmark 10-year Treasury yield falling about 140 basis points to trade near 3.36%.
On Wednesday, the Fed raised rates by 25 basis points, bringing the range for the fed funds rate to 4.75%-5%, the highest since October 2007, in addition to suggesting its aggressive rate hiking campaign to quell inflation was winding down.
“The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time,” the Fed said in its policy statement, doing away with language for “ongoing rate increases” in interest rates.
Stocks ended Thursday’s volatile trading session higher as investors digested the Fed’s latest move.
“Powell stuck with the Fed’s narrative that there is still a path toward a soft-landing or returning inflation to target without pushing the economy into a recession,” wrote Ryan Sweet, Chief U.S. economist at Oxford Economics, in a note on Wednesday. “However, that path has become narrower because of the pressure on the banking system.”
On Friday, St. Louis Fed President James Bullard raised his 2023 interest rate projection to 5.625%. This would outpace the Fed’s latest “dot plot” projections, which suggest rates will continue to tick higher in 2023, but only slightly, with benchmark interest rates seen peaking at 5.1% this year, on par with the Fed’s previous December projection.
Bullard, while speaking in St. Louis, said he’s optimistic stress in the banking system will abate, explaining: “I would put 80% of probability on the case where financial stress abates.”
“If it doesn’t abate, that’s a completely different world where financial stress gets more intense, and I would be willing to react to that,” he added.
Bank sentiment waffled on Friday as investor concerns surrounding financial stability remain heightened following the stunning collapse of Silicon Valley Bank, which trigged a ripple effect across the entire financial system.
Big bank stocks like JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Goldman Sachs (GS) continued to trade to the downside in late afternoon trading; however, Bank of America (BAC) reversed gains with shares up about 1%.
Regional bank stocks including PacWest Bancorp (PACW), Western Alliance Bancorporation (WAL), and Regions Financial (RF) turned positive in midday trading, recovering from steeper losses earlier in the day.
First Republic Bank (FRC), which briefly flipped into positive territory at around 2 p.m. ET, saw losses accelerate with an hour left to go in the trading day as shares fell more than 3%.
Shares of European bank operators Deutsche Bank (DB) and UBS (UBS) pared losses, but were still down about 4% and 1%, respectively, as Euro banks continue to feel the aftermath of Credit Suisse’s downfall.
According to Reuters, Deutsche Bank’s credit default swaps, a form of insurance against default, jumped to a four-year high, adding to greater stability concerns overseas.
However, analysts appeared calm on Friday: “We have no concerns about Deutsche’s viability or asset marks. To be crystal clear – Deutsche is NOT the next Credit Suisse,” Stuart Graham and Leona Li, strategists at Autonomous, a subsidiary of AllianceBernstein, wrote in a new research note.
Treasury Secretary Janet Yellen announced on Friday she will convene with members of the Financial Stability Oversight Council for a previously unscheduled meeting in an effort to calm banking sector jitters.
Block (SQ) fell another 2% in late trading on Friday, after falling 15% on Thursday, as Wall Street continued to sift through a new piece of short-seller research out of Hindenburg.
Hindenburg Research levied accusations of fraud against the company, which was founded and led by billionaire Jack Dorsey. In response, Block said it intended to work with the SEC to “explore legal action against Hindenburg Research for the factually inaccurate and misleading report they shared about our Cash App business today.”
“We had hoped Block’s response/refutation would be more detailed and believe ‘exploring legal action’ will likely not be enough to settle investors’ concerns,” Citi analyst Peter Christiansen wrote in reaction to the Hindenburg report, echoing shareholder sentiment.
Coinbase (COIN) bounced back on Friday, with shares up as much as 5%, after slumping 14% on Thursday following the company’s disclosure it received a Wells Notice from the SEC, which warns companies of pending action from the regulator.
Netflix (NFLX), which led the S&P 500 on Thursday with the stock surging more than 9%, saw shares settle in late trading on Friday, up about 2%.
Activision Blizzard (ATVI) climbed 6.7% at the open, the most since January 2022, after European Union regulators said on Friday it was narrowing the scope of its probe into Microsoft’s planned $75 billion takeover of the video game developer. By 2:15 p.m. ET, the stock was still up, climbing roughly 5.5%.
Shares of Silvergate Capital Corporation (SI) soared more than 70% on elevated trading volume. The move represents the highest intraday jump since February 2.
Alexandra is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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