Wall Street rallies after First Republic reports deal with large banks

All Wall Street's main indexes closed higher on Thursday following news that the troubled First Republic Bank was receiving financial assistance from some of the U.S. largest lenders.

The Dow Jones concluded the session at 32,246.55, rising 371.98 points, or 1.17 percent. The S&P 500 closed at 3,960.28, gaining 68.35 points or 1.76 percent. Meanwhile, the Nasdaq Composite ended the trading day at 11,717.28, adding 283.23 points or 2.48 percent. It was Nasdaq's biggest gain since February 2, supported by the tech sector.

Stocks of Facebook parent Meta and Snapchat operator Snap rose by 3.63 percent and 7.25 percent, respectively, after the U.S. government threatened to ban rival social media TikTok if its Chinese shareholders did not divest their stakes.

The banking sector boosted Wall Street's performance after plummeting the day before. The S&P 500 banking index rose by 2.16 percent, while the KBW regional banking index increased by 3.26 percent. Both sub-indexes wiped out losses incurred in the previous session.

Shares of JPMorgan Chase and Morgan Stanley rose by 1.94 percent and 1.89 percent, respectively. Meanwhile, regional banks Alliance Bancorp and PacWest Bancorp advanced 14.09 percent and 0.7 percent, respectively, after starting the session in the red.

First Republic shares rose by 9.98 percent to $34.27 after 11 big banks, including JPMorgan Chase, Morgan Stanley and Wells Fargo, pledged to provide a $30 billion liquidity assistance to the San Francisco-based regional bank.

Financial authorities have been closely monitoring First Republic, which analysts said was at risk of a bank run following the implosion of Silicon Valley Bank (SVB) and Signature Bank last week. The liquidity assistance provided by these large lenders is expected to help stabilize First Republic in the near term.

"Banks are looking out for one another," John Augustine, chief investment officer at wealth manager Huntington Private Bank, said. "We had two outliers go down and now they want to save what is considered a more mainstream bank."

Since SVB collapsed on March 10, regulators have worked to stabilize the banking sector and prevent more banks from facing the same fate as SVB and Signature. The Federal Reserve, backed by the Treasury Department, launched a new lending facility to help commercial banks resolve short-term liquidity problems on Sunday.

“Our banking system remains sound and Americans can feel confident that their deposits will be there when they need them.”

Janet Yellen, Secretary of the U.S. Treasury

Officials have addressed the issue in public, including Treasury Secretary Janet Yellen, who said the U.S. banking system remains "safe" and people can be assured that their deposits are accessible whenever needed.

New inflation data

Producer price growth slowed to an annual pace of 4.6 percent in February, lower than the 5.7 percent increase in the month before. The producer price index, excluding food and energy, also fell sharply to 4.4 percent. Data showed that the decline was driven by lower demand in trade, transportation and warehousing.

The Commerce Department also reported that retail sales fell by 0.4 percent in February from the previous month. Analysts said the figures showed that consumer spending had gone down after an unexpected spike in January.

On the other hand, the labor market remained strong as unemployment claims dropped more than expected last week. A resilient job market can drive wage inflation, likely prompting the Fed to raise interest rates further.

The Federal Open Market Committee (FOMC) will hold a meeting to determine rate policy next week. The market expects a 25-basis-point increase in the rate-setting meeting, a more dovish expectation compared to earlier in the month.

Analysts explained that the recent issue in the banking system and favorable inflation data would make the central bank reconsider its aggressive approach to monetary tightening for fear of triggering more volatility.