Stocks Struggle on Credit Suisse, First Republic Concerns

Credit Suisse bank sign on Geneva branch building

(Image credit: FABRICE COFFRINI/Getty Images)

Stocks spent most of Wednesday in panic-selling mode as the fallout of the Silicon Valley Bank/Signature Bank failures spread to Swiss bank Credit Suisse (CS) and throughout the broader European financial market. But while bank stocks suffered significant losses today, the major indexes closed well off their lows.

Silicon Valley Bank, Signature Bank Failures Send Bank Stocks Reeling

Credit Suisse plunged 13.9% after Saudi National Bank – its biggest investor – said it will not increase its stake above 10% in the financial services firm, according to Bloomberg News. This only added to the bank's current woes, with CS earlier this week stating in its annual report that it had found "certain material weaknesses" in its fiscal 2021 and 2022 results. This pressured the broader European banking sector, with global financial giants like UBS (UBS, -6.4%) and Barclays (BCS, -8.2%) among those suffering notable losses.

"In the absence of facts, everyone is left with little choice but to speculate and frankly, what little commentary we've had hasn't really helped," says Craig Erlam, senior market analyst at currency data provider OANDA. "We're now left in a situation in which stock markets have tumbled, banks around the world have been pummeled and everyone is wondering just how bad the situation is going to get."

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Meanwhile, First Republic Bank (FRC) crumbled 21.4% after S&P Global Ratings downgraded the regional lender's credit rating to junk status, saying "the risk of deposit outflows is elevated." The ratings agency added that it believes "First Republic's business position is weaker following the events of the past week," and that "its business stability has weakened as market perceptions of its creditworthiness have declined."

Today's chaos in the financial sector took attention away from this morning's batch of economic data. On the inflation front, data from the Labor Department showed the producer price index (PPI) – a measure of what suppliers charge businesses for goods – fell 0.1% month-over-month in February, and was up 4.6% on an annual basis. This compares to January's 0.3% monthly and 5.7% yearly increases. Separately, the Commerce Department said retail sales declined 0.4% in February, compared to January's 3.2% spike.

"The decline in producer prices coupled with a pullback in retail sales is certainly good news for the Federal Reserve, particularly as it has to focus on maintaining financial stability amid bank meltdowns domestically and abroad," says Quincy Krosby, chief global strategist for LPL Financial. "This should solidify the probability of a 25 basis point rate hike next week, if the Fed is going to raise rates at all." Market expectations are nearly split on a pause or a 0.25% rate hike at the next Fed meeting.

While the major indexes finished well off their session lows, two of the three racked up losses on the day. The Dow Jones Industrial Average gave back 0.9% to 31,874, while the S&P 500 fell 0.7% to 3,891. The Nasdaq Composite managed to eke out a marginal gain to end at 11,434.

The best communication services stocks to buy

Utility stocks and consumer staples stocks were two of the day's biggest gainers as investors sought out traditional defensive plays.

Another outperformer was the communication services sector, which houses a wide variety of industries – including internet media, entertainment and telecom services. The sector has had a strong start to the year after slumping alongside the broader market in 2022. And despite lingering macro headwinds, there are "pockets of opportunity" to be found, says Matthew Drukker, portfolio manager at Fidelity.

Investors seeking out the best communication services stocks will want to look for "companies that can cut costs and maintain solid balance sheets," as they will likely have the "best long-term prospects to come out of a downturn in a stronger position," Drukker adds.

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With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.