US stocks slid on Monday, as an initial rally in regional bank stocks faded. Investors also assessed a Federal Reserve report that warned about tighter lending standards for this year.
The Nasdaq Composite gained 0.2 percent, while the S&P 500 ended marginally higher.
Stocks of US regional bank that had surged in the early trading were unable hold onto their gains. PacWest’s shares rose nearly 30% after the company announced late last week it would reduce its quarterly dividend. However, they closed 3.6% higher.
Western Alliance gained 0.6 percent after trading as high as 11 percent higher earlier in session. The KBW Regional Banking Index lost a gain of 1.1 percent to fall 2.8 percent.
The move followed a recovery at the end last week of US banking stocks that had been shookn by fears over the collapse First Republic.
Steve Englander is a Standard Chartered strategist. He said: “There’s a risk regional bank issues can escalate and pose a broader threat to the financial system.” However, we believe that the resilience of large banks makes this unlikely.
On the government bond market, yields increased as bond prices fell following a Friday sell-off. The yield on US Treasuries two-years rose by 0.08 percentage points, to 4.01 percent.
The Fed’s survey of senior loan officers was also analyzed by traders on Monday. It showed that US Banks intend to increase their lending standards. This added to concerns about an upcoming credit crunch in the world’s biggest economy.
Majority of banks intend to tighten their standards even more over the remainder of the year. This will starve households and firms of credit, and push the economy back into recession by the second half this year,” said Michael Pearce.
The longer-term squeeze on credit will limit borrowing-sensitive sectors of the economy. This is especially true for small businesses that are responsible for a large share of hiring.
Early banking rallies had fueled gains in stocks across Europe and Asia. The pan-European Stoxx rose by 0.3 percent despite persistent concerns that interest rates would remain high in order to combat inflation even while economic growth slowed. London was closed on a public holiday.
The benchmark Hang Seng Index in Hong Kong rose 1.2 percent, while China’s CSI 300 grew 1.1 percent. Japan’s Topix fell 0.2 percent, breaking ranks with the rest.
Analysts were not optimistic that Asian markets would rise without signs of improved economic data coming from China or that the Fed could begin to cut rates.
Dickie Wong is the head of research for Kingston Securities. She said, “Overall market sentiment has stabilized, but I do not think that [the market] will be able to break through this wait-and see, up-and down pattern.”
Brent crude, a benchmark for international oil, increased by 2.3 percent to $77.01 per barrel. West Texas Intermediate, a US indicator, was up 2.6% at $73.16 per barrel.