Dow increases by 300 points as investors anticipate the Bank crisis is stopped by a Credit Suisse rescue
The Dow Jones Industrial Average rose Monday after the Swiss government engineered a forced takeover of Credit Suisse by UBS, marking the latest effort by governments around the world to stifle a crisis threatening the banking sector.
The Dow gained 366 points, or 1.1%.
Regional banks rose on Monday, rebounding from big losses in the past week as the group was forced to shore up their deposit bases in the wake of the collapse of Silicon Valley Bank. Wall Street expects more actions may be needed to restore confidence in the banking system after U.S. regulators backstopped SVB’s uninsured deposits and offered new funding for troubled banks one week ago.
The SPDR Regional Banking ETF (KRE) gained 3.1% after tumbling 14% last week. PacWest, Zions Bancorporation and First Citizens led the gains. However, First Republic shares fell 13%, adding to losses of more 71% last week.
The instability in the financial sector over the past two weeks raises the stakes for the Federal Reserve’s interest rate decision on Wednesday. As of Monday morning, there is about a 57% chance of a quarter-point increase by the Fed, according to CME Group data using fed funds futures contracts as a guide. The other 38% is in the no-hike camp, anticipating that Chairman Jerome Powell may start to ease his aggressive tightening campaign that began in March 2022, in the face of the emerging financial contagion.
UBS agreed to buy Credit Suisse for 3 billion Swiss francs, or $3.2 billion, with the combined bank to have $5 trillion in assets. Credit Suisse shares were down 21% last week. Shortly after UBS announced its takeover deal, the Fed announced it had joined with other central banks in a joint liquidity operation. The group of central banks — including the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank — agreed to increase the frequency of their U.S. dollar swap line arrangements from weekly to daily.
UBS’s takeover of its beleaguered rival is “unambiguously good for the overarching concerns about the stability of the global banking sector,” according to B. Riley Wealth Management chief market strategist Art Hogan.
After Monday’s opening bell, the Dow Jones Industrial Average rose 1%
Among U.S. exchange-traded funds, the Nasdaq 100 tracker Invesco QQQ Trust (QQQ) fell 0.3% and the SPDR S&P 500 ETF (SPY) moved up 0.1% early Monday.
The 10-year U.S. Treasury yield dived to 3.39% Friday, ending with big weekly loss as investors packed into the safe-haven bond market amid the ongoing banking crisis. On Monday, the 10-year Treasury yield rose to 3.44% in early trade, near its lowest levels since September 2022.
U.S. oil prices continued lower following last week’s 13% dive. West Texas Intermediate traded below $66 a barrel early Monday, down 1.5%, its lowest level since September 2021.
DOW JONES TECHNICAL ANALYSIS DAILY CHART:
Dow Jones is currently trading in down channel.
Dow Jones is currently trading below 20&50 SMA.
RSI is in buying zone which suggests bullishness and Stochastic is suggesting no trend.
Immediate resistance is at 32458.37 & its immediate support level is 31931.43
HOW TO TRADE DOW JONES IN THIS WEEK
Dow Jones is currently making a good green hammer after taking support from its support zone; if it can maintain this level, further upside may be possible.