Dow down 300 points, Nasdaq nearly flat in final hour trade after Credit Suisse woes reignite bank-sector angst

U.S. stocks were lower in the final hour of trade Wednesday, but off the session’s worst levels, after concerns over the health of Credit Suisse sparked renewed banking-sector anxiety.

On Tuesday, the Dow Jones Industrial Average rose 336 points, or 1.06%, to 32,155, the S&P 500 increased 64 points, or 1.65%, to 3,919, and the Nasdaq Composite gained 239 points, or 2.14%, to 11,428.

What’s driving markets

Major U.S. stock indexes trimmed earlier losses in the final hour of trading on Wednesday after Swiss authorities said in a statement that Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks, but the national bank will provide additional liquidity if necessary.

All three indexes earlier slid after the slump in shares of Credit Suisse stoked fears of broader banking sector issues following the fallout of U.S. banks Silicon Valley Bank and Signature Bank in the past week.

The Swiss National Bank and the Swiss Financial Market Supervisory Authority also said in the statement that there are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the U.S. banking sector.

See: Credit Suisse shares tumble to new record low as European banking sector reels

ADR shares of the Switzerland-based Wall Street bank Credit Suisse tumbled nearly 17% on Wednesday, but well off its session low, after its biggest backer Saudi National Bank told Bloomberg that it would not provide further financial support for the bank.

The volatility prompted an automatic pause in trading of the bank’s shares on the Swiss market and pressured the rest of the European banking sector. The Euro STOXX banking index  dropped 8.2%, with shares of major French banks Societe Generale  declining by nearly 12% and BNP Paribas   fell 10%.

On Tuesday, Credit Suisse said in its annual report that it had material weaknesses in financial controls. The bank has lost money for five straight quarters, and its wealthy clients in the fourth quarter withdrew about $100 billion from the bank.

See: Regional and big bank stocks choppy amid rising fears of banking crisis

Meanwhile, U.S. economic data showed that sales at retailers fell 0.4% in February and declined for the third time in four months, pointing to a slowdown in consumer spending.

And wholesale prices dropped 0.1% in February. Economists polled by the Wall Street Journal had forecast a rise of 0.3%. The core producer-price index, which excludes volatile food, energy and trade prices, went up 0.2% in February.

See: Wholesale prices decline, PPI shows, and hint at easing U.S. inflation

“Despite today’s economic reports printing lower-than-expected numbers, the declines in both releases are not broad-based, which supports our belief that the Federal Reserve will raise rates by 25 basis points at the upcoming March meeting,” noted Eugenio Aleman, chief economist at Raymond James, in a Wednesday note.

Markets expect the Fed to raise interest rates by 25 basis points to a range of 4.7% to 5% at its meeting on March 21-22. Just two days ago, traders were betting the Fed could leave rates unchanged in a week’s time in order to soothe anxiety in the banking sector. However, ahead of the Silicon Valley Bank’s fallout, the debate was a 25-basis-point or 50-basis-point increase to the federal-funds rate, according to CME FedWatch tool.

“What’s going on right now is the market is saying: the Fed is not going to hike rates as much like [we expected] just a week ago,” said Nancy Davis, founder of Quadratic Capital Management.

“The thing I would like to emphasize is investors should be buying inflation protected securities as part of the diversified portfolio. The market has complete confidence that the Fed rate hikes are going to get the job done and kill future inflation,” Davis told MarketWatch in a phone interview on Wednesday. “But 6% CPI, whether it should be five or it should be three, is still way above [the 2% inflation target].”

See: Why SVB’s ‘safe’ investment securities turned into a problem for banks

Nasdaq Composite outperformed the broader market with shares of some of the most established technology companies jumping, as investors flocked to technology and semiconductor stocks in the wake of the collapse of Silicon Valley Bank.

Treasury yields plunged on Wednesday with the yield on the 2-year Treasury diving almost 35 basis points to 3.86%, the lowest level since September, 2022, according to Dow Jones Market Data.

Sharp movements in government yields pushed the ICE BofAML MOVE Index, a gauge of implied Treasury volatility, to a near 14-year high on Tuesday. A rising MOVE index has tended of late to pressure equities because the uncertainty in bonds makes it more difficult to value stocks.

Companies in focus

— Jamie Chisholm contributed to this article.