- Just a day after Wall Street breathed a sigh of relief with the rescue of First Republic Bank, a selloff in US regional lenders fueled renewed concern about financial stability, sinking stocks across the board and prompting a rush to the market's safest corners.
- Multiple volatility halts in PacWest Bancorp and Western Alliance Bancorp were viewed as concerning on the eve of the Federal Reserve decision. Both stocks had fallen by at least 15%. The financial sector weighed heavily on the S&P 500, which dropped nearly 2% at one point before trimming losses.
- All of these factors, taken together, are heightening investor concern about the Fed's quandary. In addition to the financial strains caused by bank failures, officials are caught between stubbornly high inflation and data indicating an economic downturn, such as Tuesday's JOLTS record of job openings, which fell to the lowest level in nearly two years.
- While swaps continue to price in a quarter-point Fed rate increase on Wednesday, traders have reduced their bets on further rate hikes while increasing their bets on rate cuts before the end of the year.
