Stocks hold steady as some calm remains on Wall Street
By STAN CHOE
AP Business Writer
NEW YORK (AP) — Stocks are mixed in relatively quiet trading on Tuesday, and Wall Street is regaining some cool at the tail end of what’s been a turmoil-filled month.
The S&P 500 was 0.1% lower in early trading. The Dow Jones Industrial Average was up 53 points, or 0.2%, at 32,485 as of 9:45 a.m. Eastern time, while the Nasdaq composite was 0.6% lower.
There was calm even in the bond market, which has been home to some of Wall Street’s wildest moves since fears flared about the banking system earlier this month. Yields were holding relatively steady following their historic-sized moves in prior weeks.
This month has been dominated by worries that banks around the world may be cracking under the pressure of much higher interest rates. In the U.S., investors have been on the hunt for smaller and midsized banks that could see a quick exodus of customers akin to the run that toppled Silicon Valley Bank. In Europe, meanwhile, big banks have come under pressure at times as investors look for potential weak links.
Some calm has returned to the market as regulators have made big moves to protect the system. In the U.S., regulators found a buyer for much of Silicon Valley Bank after introducing a program that helps banks raise cash more easily. And across the Atlantic, regulators pushed one Swiss banking giant to take over another.
Bank stocks were holding relatively steady Tuesday, including those investors have highlighted as most at risk.
First Republic was up 0.1%, while PacWest Bancorp. was down 2.1%. The harshest focus has been on them and not the “too big to fail” banks, which are seen as less of a risk.
One of the broader worries has been that all the furor could lead to a pullback in lending by banks to businesses across the country. That in turn could lead to less economic growth and a higher risk of a recession.
Jan Hatzius, chief economist and head of global investment research at Goldman Sachs, recently raised his probability of a recession over the next year to 35% from 25%. But in a report, he called the banking industry’s struggles “a headwind, not a hurricane” for the economy.
Worries were already high about a possible recession given how high the Federal Reserve and other central banks have yanked interest rates over the last year to undercut inflation. Higher rates can do that but only by hitting the entire economy with a blunt hammer. They also drag on prices for stocks, bonds and other investments along the way.
The Fed announced its latest hike to rates last week, saying it opted for a gentler increase of 0.25 percentage points than one of 0.50 points because the banking industry’s challenges could end up acting like a rate increase on their own. It also hinted one more increase may be on the way before it holds rates steady for a while.
Even though it’s been easing since the summer, inflation still remains well above the Fed’s target.
Traders, though, are betting the Fed will have to cut rates as soon as this summer to prop up the economy. Such bets have returned in force since the banking industry’s woes began. They also materialized almost as quickly as a prior round of bets for rate cuts had earlier disappeared following a wave of data showing inflation was stickier than expected.
Such drastic shifts in expectations for the Fed have led to huge swings in the bond market. On Tuesday, they were taking it a bit easier.
The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, ticked up to 3.55% from 3.54% late Monday.
The two-year yield, which moves more on expectations for the Fed, inched up to 4.02% from 4.01%. It was above 5% earlier this month and at its highest level since 2007.
In markets abroad, stocks were little changed in much of Europe, and Asian indexes finished mostly higher.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.
