To The Moon

Market Recap | U.S. Stocks Gain, but First Republic Bank Slides

U.S. stocks climbed Monday on hopes for stability in the banking sector after regulators engineered a deal for Swiss banking giant UBS to take over rival Credit Suisse.

In 4 p.m. ET trading, $DJIA(.DJI)$ added about 380 points, or 1.2%, and $S&P 500(.SPX)$ rose 0.9%. $NASDAQ(.IXIC)$  climbed 0.4%. The indexes declined Friday but have been relatively insulated from the banking crisis thus far.

Authorities have sought to halt a dangerous decline in confidence in the global banking system and get ahead of potential stress in markets. As well as the UBS-Credit Suisse deal, regulators moved to bolster international access to U.S. dollars.

"It's bullish that governments have stepped in," said Ross Mayfield, investment strategy analyst at Baird. But he said any investor optimism is tempered by fears that the turmoil isn't over. "So I think it's relief but with a looming uncertainty and angst about what might really be underneath if you really keep digging."

Shares in $First Republic Bank(FRC)$ , a key concern at present of U.S. officials, fell to record lows, according to data going back to 2010. In 4 p.m. trading, the shares were down 47% to $12.14 and they dropped as low as $11.52 earlier in the session. Major bank chief executives, led by JPMorgan Chase & Co. Chief Executive Jamie Dimon, are discussing fresh efforts to stabilize the troubled bank, The Wall Street Journal reported.

Other regional banks rallied, with $PacWest Bancorp(PACW.US)$ shares up 11% at 4 p.m. and $Zions Bancorp(ZION.US)$ shares up 0.8% . Shares of major U.S. banks were little changed.

$Amazon.com(AMZN)$ shares dropped 1.3% after the company said it would cut 9,000 more jobs, after announcing plans for 18,000 job cuts in early January.

In Europe, $Credit Suisse(CS.US)$ shares sank 56%. Shares in UBS initially fell by double-digit percentages, before rebounding to add 1.3%. Trading in stocks of other major European banks, including BNP Paribas, Deutsche Bank and Banco Santander, was also volatile.

Investors are split in expecting what the Federal Reserve will do when it meets this week. Goldman Sachs Group is projecting the Fed will keep rates steady. Traders in interest-rate futures ascribe just under a 3-in-5 probability of a quarter-point rate increase, according to CME Group's FedWatch tool.

Daleep Singh, former U.S. deputy national security adviser for international economics, said either option is fraught.

"Doing less on rate hikes now means you may have to do more later" with potentially worse consequences, Mr. Singh said. But any increase "risks triggering nonlinear damage when fear is rampant and psychology is fragile."

Mr. Singh predicted the Fed will increase rates by a quarter-percentage point and that officials will signal that they instead to be less aggressive going forward, similar to the European Central Bank last week.

While central bankers are worried about bringing down sticky inflation levels, said Hugh Gimber, a strategist at J.P. Morgan Asset Management, stress on the banking sector will ultimately lead to lower inflation.

"Banks are being put under pressure. We think banks will be less willing to extend credit to the real economy, and then it's less about interest rates," he said.

The yield on the benchmark 10-year Treasury note ticked up to 3.477% from 3.395% Friday, reversing an earlier decline. Yields and prices move inversely. Most actively traded gold futures jumped as much as 2% before moderating gains to settle 0.5% higher.

European additional tier 1 bonds fell in price Monday, as did similar bank bonds in Asia, after Swiss regulators surprised investors by wiping out riskier Credit Suisse bonds. AT1s were introduced after the financial crisis as a way to transfer banking risk away from taxpayers and onto bondholders.

The pan-continental Stoxx Europe 600 index added 1%. In Asia, major indexes closed lower. China's Shanghai Composite fell 0.5%, while Hong Kong's Hang Seng shed 2.7%. Japan's Nikkei 225 declined 1.4%.

Concerns about economic uncertainty from banking-sector turbulence have weighed on energy markets. Brent crude, the international benchmark for oil prices, added 1.1% to $73.79 a barrel.

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