Stock Markets Rise, Led by Banks, Ahead of Fed Meeting

First Republic Bank, the San Francisco lender that has become the focus of Wall Street’s concerns about the U.S. banking system, was set to rise on Tuesday, but the premarket gains would only recover a fraction of the value of its beaten-down shares. First Republic’s stock has fallen about 90 percent this month, erasing tens of billions of dollars in market value. The bank was worth just over $2 billion at the close of trading on Monday, roughly the same as Bloomin’ Brands, the owner of Outback Steakhouse.

The bank has been entertaining some possible buyers after a $30 billion cash infusion from the country’s largest banks failed to restore confidence among investors. Analysts at Morningstar “struggle with why a buyer would be motivated to step in, except perhaps if it were being pushed for by regulators,” they wrote in a new report about First Republic’s prospects.

A critical question now for investors, particularly those worried about the effects of higher interest rates on banks’ balance sheets, is what the Federal Reserve will do when its policymakers meet this week. Some investors and economists believe that the Fed could choose not to raise rates at all, although the return of some measure of calm to the markets this week has bolstered bets that Fed policymakers will raise rates by a quarter-point when they announce their decision on Wednesday.

The debate shows just how quickly the banking crisis has upended views in the markets. A few weeks ago, the question was whether the Fed would ramp up the pace of its interest rate increases. Now, traders are betting on a series of rate cuts beginning in the summer.

Economists have begun to warn that the trouble in the financial system could weigh on the broader economy, if lenders begin to pull back as they look to shore up their own finances.

Article source: https://www.nytimes.com/2023/03/21/business/markets-stocks-banks.html