S&P 500 jumps as banks rebound on UBS-Credit Suisse deal

© Reuters

By Yasin Ebrahim                                                  

Investing.com -- The S&P 500 rose Monday, as UBS agreed to buy struggling rival Credit Suisse (SIX:CSGN), lifting sentiment on banking stocks just a day ahead of the Federal Reserve’s two-day meeting.

The S&P 500 was up 0.7%, the Dow Jones Industrial Average gained 1%, or 318 points, the Nasdaq Composite was up 0.2%.

UBS (NYSE:UBS), Switzerland’s largest bank, agreed to buy Credit Suisse for $3.2 billion in an emergency rescue deal.

In a further boost to financial stability in Europe, European Central Bank President Christine Lagarde said the central bank was “ready to respond as necessary” to preserve eurozone stability.

The rescue deal for Credit Suisse (NYSE:CS) helped strengthen sentiment on banks, with regional banks including Fifth Third Bancorp (NASDAQ:FITB), Lincoln National Corporation (NYSE:LNC) and NYCB leading to the upside.

New York Community Bancorp (NYSE:NYCB) jumped more than 33% as its subsidiary, Flagstar Bank, agreed to buy a large part of Signature Bank following the bank’s recent collapse.

First Republic Bank (NYSE:FRC), however, wasn’t among the gainers and plunged by more than 41% after Standard & Poor’s cut the ailing bank’s creditworthiness deeper into junk territory amid ongoing liquidity concerns.

The downgrade comes just days after 11 banks pumped $30B into the regional bank. But S&P said the move is unlikely to solve the First Republic’s liquidity problems and warned another downgrade was possible.

Tech was pressured by a slide in Microsoft Corporation (NASDAQ:MSFT) and Amazon.com Inc (NASDAQ:AMZN), with the latter announcing 9,000 job cuts in its cloud hosting division Amazon Web Services.

A climb in U.S. Treasury yields also kept a lid on tech just ahead of the Fed’s two-day meeting, which kicks off on Tuesday.

At the conclusion of its two-day meeting Wednesday, the Fed is expected to hike rates by 0.25%, but much uncertainty remains about the path forward for further hikes in the wake of the turmoil in the banking sector.

About 70% of traders expect a rate hike, but Goldman Sachs said it expected a pause at the March meeting this week “because of stress in the banking system.”

Energy stocks were also in the ascendency shrugging off a wobble in energy prices amid ongoing jitters that the banking crisis could hurt global growth and energy demand.

APA Corporation (NASDAQ:APA), Hess Corporation (NYSE:HES), and EQT Corporation (NYSE:EQT) led the gains in energy, up more than 2% on the day.

“Oil prices have plunged despite the China demand boom given banking stress, recession fears, and an exodus of investor flows,” Goldman Sachs after nudging down its Brent forecasts to $94 per barrel for 12 months ahead from $100 previously.

In other news, Virgin Orbit Holdings Inc (NASDAQ:VORB) is reportedly planning to file for bankruptcy should the commercial space company fail to secure funding, according to several media outlets. Its shares sunk 27%.