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KBW Bank Index soars as US market roars higher

posted onMarch 14, 2020

A day after the Dow Jones Industrial Average and the S&P 500 index suffered their biggest one-day plunge since the “Black Monday” 1987 market crash, US stocks showed a substantial move back to the upside on Friday (March 13).

Shares of Goldman Sachs and JPMorgan Chase JPM contributed around 75% of the Dow's intraday rally. The KBW Bank Index, which tracks the stock prices of prominent banking companies, soared by 14.8%.

As investors were bombarded with a slew of negative headlines about the coronavirus this week, policy makers across the US, Asia and Europe announced new measures aimed at blunting the economic blow of the disease.

US President Trump declared a national emergency at a news conference Friday afternoon, noting the move will make up to $50 billion available to combat the pandemic. According to the US president, the emergency declaration was necessary as some "old and obsolete" rules could not work under such "mass circumstances."

U.S. Treasury Secretary Steven Mnuchin also said the government would use all its tools to support financing market functioning.

“There will be liquidity available. Whatever we need to do, whatever the Fed needs to do, whatever Congress needs to do, we will provide liquidity,” Mnuchin said during an interview on CNBC. 

On Thursday, the Federal Reserve announced extraordinary funding actions amid the turmoil created by the coronavirus. The US central bank said it will lend $1.5 trillion to the short-term funding markets. 

It also said it would add purchases of Treasury notes and bonds to its existing $60 billion per month purchase program of Treasury bills to expand its balance sheet. 

Many economists expect the Fed to cut the fed funds rate by a full percentage point, to a range of zero to 0.25% at its March 17-18 meeting. This follows on  an emergency half percentage point cut already engineered earlier this month.

After recording the worst day since 1987 on Thursday stocks closed up Friday and recorded their strongest rally since 2008. After all the back and forth, for the week, the major averages posted steep losses despite Friday’s sharp gains. The Dow lost 10% this week while the S&P 500 and Nasdaq slid more than 8% each.  

Market participants expect this crazy volatility to stick around for a while longer. 

“More is needed and expected to stop this liquidity squeeze from escalating into a deeper funding crunch,” Morgan Stanley analysts said in a report sent on Friday.