The financial sector is already under pressure, and the Dow drops 500 points because of Credit Suisse.
- The stock fell on Wednesday as pressure on the financial sector increased with shares of Credit Suisse, a Swiss Bank that has large U.S. and global operations, tumbling more than 25%.
- The Dow Jones Industrial Average fell 525 points or 1.6%.
In recent days, a crisis in the financial sector has centered around regional banks as Silicon Valley Bank and Signature Bank collapsed, both casualties of poor management in the face of eight interest rate hikes by the Federal Reserve in the last 12 months. Wednesday morning attention turned to the big banks with shares of Credit Suisse hitting an all-time low.
Saudi National Bank, Credit Suisse’s largest investor, said Wednesday it could not provide any more funding, according to a Reuters report. This comes after the Swiss lender said earlier this week it had found “certain material weaknesses in our internal control over financial reporting” for the years 2021 and 2022.
U.S.-traded shares of Credit Suisse dropped more than 27% in the premarket.
As Credit Suisse dragged down the European Bank sector, U.S. big bank shares declined in sympathy. Citigroup and Wells Fargo’s shed nearly 5% each, while Goldman Sachs and Bank of America fell around 3% and 4%, respectively. The Financial Select Sector SPDR Fund (XLF) lost 3.4% in premarket trading, giving up its 2% pop on Tuesday.
Regional banks, which rebounded Tuesday to lift sentiment for the broader market, fell back into the red again. The SPDR S&P Regional Banking ETF (KRE) was down 4.6% in the premarket, led by losses in Old National Bancorp, Zions Bancorp and Fifth Third Bancorp. Despite clinging to gains earlier in extended trading, First Republic Bank tumbled 22%.
Peter Boockvar of Bleakley Financial Group said pressure on the financial sector was growing broadly because the bank failures have changed the mindset of the industry.
“What this is telling us is there’s the potential for just a large credit extension contraction that banks are going to embark on [to] focus more on firming up balance sheets and rather than focus on lending,” Boockvar said to CNBC’s “Squawk Box.”
“It’s a balance sheet rethink that the markets have” Boockvar added, citing that many banks may have bought longer maturity bonds that have reduced in value since the Fed started raising rates. “Also, you have to wonder with a lot of these banks if they’re going to have to start going out and raising equity.”
The producer price index posted an unexpected decline of 0.1% in February from the prior month, cooling despite economists polled by Dow Jones estimating a 0.3% increase from January. Retail sales also fell 0.4% in February from January, in line with economists’ expectations.
DOW JONES TECHNICAL ANALYSIS DAILY CHART:
Dow Jones is currently trading in the down channel.
Dow Jones is currently trading below all SMA.
RSI is in the selling zone which suggests bearishness and Stochastic is suggesting an uptrend.
Dow Jones’s immediate resistance is at 31907.42 & its immediate support level is 31508.43
HOW TO TRADE DOW JONES IN THIS WEEK
Dow Jones is trading down Channel; it has broken its important support level and the previous day’s low; it will continue to trade downside until any trend reversal.
