On Tuesday, the US stock market experienced a significant drop as the impact of First Republic Bank’s failure continued to hit bank stocks, and the Federal Reserve began its two-day meeting. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all closed lower by 1.16%, 1.08%, and 1.08%, respectively. Additionally, government bonds also slumped as fresh data from the Labor Department showed that the labor market continues to cool. The yield on the 10-year note was down to 3.4%, and the two-year note yield fell to 3.9%. Just before the Federal Reserve’s announcement, First Republic was taken over by regulators, and JPMorgan Chase bought most of its assets, making it the third American bank to fail since Silicon Valley Bank and Signature Bank collapsed in March.
This news has caused investors to worry that the worst isn’t over for regional banks, with the S&P 500 regional banking index down over 6%, hitting a new 52-week low, according to Bespoke Investment Group. Additionally, investors are closely waiting for the outcome of the Fed meeting, expected to be announced on Wednesday, where the Fed is widely expected to raise rates by a quarter point. Some investors are betting that the central bank will retain its hawkish stance and potentially indicate a rate hike in June. On Friday, Wall Street will turn its attention to April’s jobs report.