Banks Crater, Bonds and Stocks Rally in a Wild Day for Markets

Its quest to tame inflation, the thinking now goes, comes second to the health of the nation’s bank sector. Investor concern has focused on the regional banks that weren’t subject to the same sort of regulatory scrutiny in recent years as the big Wall Street banks.

The U.S. system of Federal Home Loan Banks, a key source of cash for regional lenders, is ramping up the amount of cash it has available to deploy as SVB’s failure raises expectations more banks will need help.

Traders in swaps markets have downgraded their bets for another quarter point by the Fed next week.

Goldman Sachs Group Inc. economists as well as money managers from Pacific Investment Management Co. are saying the Fed could take a breather after ratcheting up rates to the current range of 4.50-4.75% from 0% in just 12 months. What’s more, some are betting the Fed will cut rates three times in the second half of the year.

That plunge in yields helped buoy U.S. stocks more broadly, with the S&P 500 Index steadying in the afternoon session after an early selloff. The index ended the day down 0.2%.

The tech-heavy Nasdaq 100, which is sensitive to moves in interest rates, rose 0.8% as shares of the biggest technology names, including Microsoft Corp., Apple Inc. and Amazon.com Inc., climbed.

The tremors in the banking system and the prospect of a less hawkish Fed also pushed cryptocurrencies higher, with Bitcoin jumping 13%.

But all eyes were on banks. The KBW Bank Index, one of the main gauges for the financial industry, sank 12%, the most since March 2020. That followed a 16% plunge last week.

“The thought process is that the government agencies are willing to protect the depositors, but that seems to be it,” R.J. Grant, who oversees trading at KBW, said by phone. “Based on their actions, it signals that they don’t care about the equity of these banks.”

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