Trading was turbulent on Monday as investors digested the latest bank headlines and looked ahead to the next Fed meeting.
In addition to news that UBS Group (UBS) will take over embattled competitor Credit Suisse (CS), reports emerged that JPMorgan Chase (JPM) CEO Jamie Dimon is leading efforts to save beaten-down regional lender First Republic Bank (FRC). Those developments helped lift most bank stocks – although two in particular took notable dives.
After last week's turmoil at Credit Suisse, Swiss regulators over the weekend encouraged UBS Group to buy the bank for $3.2 billion, or not quite half of the latter's market value as of Friday's close. The deal sent shares of CS tumbling 53.0%, while UBS stock added 3.3%.
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"After all the years of rumors suggesting that UBS and Credit Suisse could or would merge, it's finally happening, but as a hastily arranged brokered deal to help halt heavy outflows from CS, as well as designed to help bolster confidence in the global banking system," says Quincy Krosby, chief global strategist for LPL Financial. Given the speed with which the buyout occurred, there's likely to be a "host of questions" and a "broad range of concerns," including over "many of the risky and hard to price assets sitting on CS's balance sheets," the strategist adds.
Back at home, First Republic Bank continued to struggle, slumping 47.1% even as JPMorgan CEO Jamie Dimon gathered with top bank CEOs to discuss rescue efforts to save the struggling regional lender. Last week, JPM and other big financial firms committed to depositing billions of dollars in First Republic to shore up its liquidity.
Meanwhile, investors kept a cautious eye trained on this week's Federal Reserve meeting, which kicks off tomorrow and will conclude on Wednesday with a policy decision. Interest rate traders assign a 73% probability to the Fed issuing a 0.25% interest rate hike. By the same token, the market is pricing in about a 27% probability that the central bank will pause its campaign of rate increases due to instability in the financial sector.
Ahead of the start of the two-day gathering, the Dow Jones Industrial Average rose 1.2% to 32,244, the S&P 500 gained 0.9% to 3,951, and the Nasdaq Composite added 0.4% to 11,675.
Gold is an "attractive opportunity" for investors
Following the recent turmoil in the bank industry, the word at the top of everyone's mind is "contagion," says George Smith, portfolio strategist; Jeffrey Buchbinder, chief equity strategist; and Lawrence Gillum, fixed income strategist at LPL Financial, with many folks wondering "if troubles at Silicon Valley Bank, CS, and others [will] spread to the wider banking sector and lead to a 2008-like banking crisis." Happily, the strategists say that several metrics of financial market stress "suggest the recent banking challenges are contained."
Even so, the group reminds investors that when stocks are fluctuating wildly, it's critical to stick to a well thought-out plan that maintains focus on long-term objectives. One of the more attractive opportunities the LPL strategists pinpoint in this macro environment are precious metals – and particularly gold. Two of the easiest ways to gain access to the hard asset are through the best gold ETFs and the best gold stocks.
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