Stocks declined Thursday, a day after the Federal Reserve hiked rates by another 25 basis points. Traders also grappled with returning contagion fears in the regional bank space.
Shares of PacWest tanked by more than 35%. The decline came after news that the California bank has been assessing strategic options, including a possible sale, a person familiar told CNBC. Regional bank shares sold off hard, with Western Alliance tumbling 19.2% and Zions Bancorporation dropping 11.3%.
There likely won’t be a respite for the embattled regional banking sector until the Fed cuts interest rates, said Jeffrey Gundlach, CEO of DoubleLine. Since the closure of Silicon Valley Bank in March, First Republic has joined the ranks of failed institutions and was recently taken over by JPMorgan Chase.
“Leaving rates this high is going to continue this stress,” Gundlach said Wednesday. “I believe with a very high degree of probability there’s going to be further regional bank failures.”
As the Fed pushed through its 10th rate hike in this cycle and the central bank seemed to soften its language on future increases, Chair Jerome Powell said that it may be too soon to cut.
“We on the committee have a view that inflation is going to come down not so quickly,” he said in his post-meeting press conference. “It will take some time, and in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won’t cut rates.”
Stocks closed lower Wednesday, with the Dow shedding 270 points, or 0.8%, and the S&P 500 dropping 0.7%. The Nasdaq Composite lost roughly 0.5%.
Looming ahead are key economic reports that will inform the Fed’s next steps from here. Friday’s main event will be April’s payrolls report, which economists polled by Dow Jones predict will rise by 180,000.
In terms of earnings, investors will be watching Apple, which is slated to post earnings after the market’s close, along with Lyft, DraftKings and Coinbase.
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