U.S. stock market closes higher following Credit Suisse buyout

Wall Street's major indexes rallied on Monday as the news of Credit Suisse's buyout calmed the market's nerves about the stability of the global banking system.

The Dow Jones Industrial Average finished at 32,244.58, gaining 382.6 points or 1.2 percent. The S&P 500 closed at 3,951.57, rising by 34.93 points or 0.89 percent. The tech-focused Nasdaq concluded the session at 11,675.54, adding 45.03 points or 0.39 percent.

All major sectors within the S&P 500 index closed higher, while the CBOE Volatility index, considered a fear gauge in the U.S. stock market, declined.

The banking sector notably performed better on Monday compared to last week. The S&P banking index rose by 0.6 percent, while the KBW Regional Banking index went up by 1.5 percent.

Shares of New York Community Bancorp (NYCB) rose by 31.7 percent after its subsidiary, Flagstar Bank, agreed to purchase deposits and loans from the now-defunct Signature Bank.

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"Where it is another bank coming in, that is the kind of headline that helps underpin confidence in the banking system," Quincy Krosby, chief global strategist at wealth manager LPL Financial, said. "It helps to halt the panic and fear."

Los Angeles-based regional bank PacWest Bancorp also closed 10.8 percent higher after it reported more stable deposit outflows.

On the other hand, San Francisco-based regional bank First Republic plunged by 47.1 percent after S&P Global downgraded its stock rating. Furthermore, a recent report suggested that the First Republic attempted another fundraising despite receiving a $30 billion emergency fund last week.

On Sunday, Switzerland's UBS agreed to acquire its rival bank, Credit Suisse, for $3.23 billion. The deal was facilitated by the Swiss National Bank in an effort to manage the turmoil in the banking sector. This deal also involves a $17 billion debt write-out for Credit Suisse.

The Zurich-based Credit Suisse reported a liquidity crunch last week, with its top shareholders refusing to put more funds into the investment bank. As one of the largest global banks, Credit Suisse's issue raised concerns about the stability of the banking system.

Swiss banking authorities offered a $54 billion lifeline to resolve Credit Suisse's liquidity in the near term, but analysts said it had done little to ease banking fears, leading to the buyout.

Top central banks — the U.S. Federal Reserve and banking authorities of the European Union, Britain, Canada, Japan and Switzerland — also agreed to expand its dollar swap program on Sunday, which can boost dollar liquidity in global markets.

Fed to consider pausing rate hikes

The turmoil in the banking sector will make the U.S. central bank consider pausing its rate hikes in the upcoming Federal Open Market Committee (FOMC) meeting, analysts believe.

Futures tied to Fed's policy show a 28.4 percent probability of the Fed maintaining its overnight benchmark rate at 4.5 to 4.75 percent. Regardless, financial services firm CME Group reported that most investors still leaned toward a 25-basis-point increase in the meeting.

Earlier this month, the market projected a 50-basis-point increase by the Fed. However, the Fed may change course in its policy direction since the central bank's monetary tightening had partially caused said volatility.

The global banking turmoil started in the U.S. when Santa Clara-based Silicon Valley Bank (SVB) collapsed on March 10 due to a liquidity crunch. SVB clients, mostly startups, withdrew a large number of deposits in a short period as high interest rates caused financing difficulties for them.

SVB tried to sell assets to meet its liquidity needs before the closure, but high interest rates brought down its asset value by nearly $2 billion.

On March 12, financial regulators decided to shut down another regional bank, Signature, citing "systemic risks."