The Dow Jones Industrial Average rose slightly on Monday, the first day of the month, as traders assessed the takeover of failed bank First Republic.
JPMorgan Chase has acquired all of troubled lender First Republic’s deposits and a “substantial majority of assets,” according to a release. JPMorgan’s shares rose more than 4% in premarket trading on the news.
“This is changing the narrative on big banks. Big banks are no longer viewed as a source of systemic risk. They’re viewed as stabilizers,” Mohamed El-Erian, chief economic advisor of Allianz, told CNBC’s “Squawk on the Street” on Monday morning. “Big banks are not being viewed as too complex anymore. They’ve been viewed as diverse enough to absorb.”
“Ironically, the troubles of banks that were viewed safe in the old days, the narrow bank, [like] First Republic ... It turns out, it’s not diversified enough. So the other big advantage for JP Morgan, which is very difficult to measure, is that the narrative about big banks, right, it’s changing and changing and an important factor,” El-Erian continued.
First Republic reported last week that deposits tumbled more than 40% in the first quarter, triggering further declines in the already struggling stock. Shares have cratered 97% since the start of the year.
Stocks are coming off a winning week and month. For April, the Dow gained 2.5% to notch its best monthly stretch since January, while the benchmark index gained 1.5%. The tech-heavy index posted marginal gains. Earnings reports from major tech companies dominated much of last week’s market debate, fueling the narrative that earnings are faring better-than-feared, despite many widespread macroeconomic concerns.
So far, a little over half of S&P 500 companies have reported earnings, with more than 79% and about 72% surpassing earnings and sales expectations, respectively. First-quarter earnings are currently on track to fall 3.7% for the period, a smaller drop than the 6.7% decline projected on March 31, according to FactSet.
Monday kicks off another busy week for earnings, with results from Norwegian Cruise Line and MGM Resorts. Reports from Pfizer, Starbucks, Advanced Micro Devices and CVS Health are due out later in the week.
Wall Street also awaits ISM manufacturing data, construction spending and S&P Global manufacturing PMI on Monday. April’s nonfarm payrolls report is on deck Friday.
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