Thursday, March 16, 2023

Dow Drops 400 Points as Credit Suisse Worsens Troubled Banking Sector

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On April 6, 2022, U.S. stocks declined, led by a sharp drop in the financial sector, after Credit Suisse’s shares fell more than 15% due to its exposure to the Archegos scandal. The Dow Jones Industrial Average fell 510 points, or 1.6%, while the Nasdaq Composite and S&P 500 dropped. The decline decreased the S&P 500’s year-to-date gain to less than 1%.

Attention turned to large banks as Credit Suisse’s largest investor, Saudi National Bank, said it could not provide more funding. The Swiss lender reported “material weaknesses” in its internal control over financial reporting for 2021 and 2022. As a result, other significant U.S. bank shares, including Citigroup, Wells Fargo, Goldman Sachs, and Bank of America, also declined. The Financial Select Sector SPDR Fund (XLF) lost 3.3%. The SPDR S&P Regional Banking ETF (KRE) was down 2.2%, and First Republic Bank saw more than 10% losses.

Recent news in the financial sector is focused on the collapse of Silicon Valley Bank and Signature Bank. Still, the drop in Dow, S&P 500, and Nasdaq, which marked five weeks of losses for all three averages, also attracted enormous attention. Walgreens contributed to the Dow’s decline after reporting a quarterly loss due to a $5.2 billion opioid litigation settlement. Bed Bath & Beyond’s announcement that it is short on cash and considering bankruptcy led to a nearly 30% drop in its share price. The crypto-friendly bank Silvergate Capital plummeted 42.73% after disclosing major customer withdrawals.

Despite solid job growth, the market’s pressures continue to weigh on companies, and it remains to be seen when hiring will slow down. Investors are awaiting the December jobs report for updated data on employment and hourly wages, which economists estimate will show moderate job growth and wage increases.

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