NEW YORK — Stocks rallied Thursday after a group of big banks offered a lifeline to the bank that investors zeroed in on in their hunt for the industry’s next victim.
The S&P 500 jumped 1.8% for its best day in nearly two months after 11 of the biggest banks said they would deposit a combined $30 billion into First Republic Bank. The Dow Jones Industrial Average erased an early loss of 300 points to climb 371 points, or 1.2%, while the Nasdaq composite jumped 2.5%.
This week has been a whirlwind for markets globally on worries that banks may be bending under the weight of the Federal Reserve’s fastest set of hikes to interest rates in decades. Concerns flared since Friday’s collapse of Silicon Valley Bank, the second largest bank failure in U.S. history.
First Republic Bank was at the center of the market’s swivels, and it rose 10% Thursday after slumping as much as 36% early in the day. In announcing their deposits, the 11 banks said the move “reflects their confidence in First Republic and in banks of all sizes.”
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A security guard stands inside a First Republic Bank branch Thursday in the Chinatown neighborhood of Manhattan.
Treasury yields also strengthened suddenly following the first reports of a possible rescue by the industry, a sign of increased confidence from the bond market.
European stocks rose after the European Central Bank announced a half a percentage point increase to interest rates. Concerns also eased about another bank, Credit Suisse, that helped cause markets to tumble Wednesday.
Credit Suisse’s stock in Switzerland leaped 19.2% Thursday after it said it will strengthen its finances by borrowing up to 50 billion Swiss francs — about $54 billion in U.S. currency — from the Swiss National Bank.
Higher interest rates can tame inflation by slowing the economy but raise the risk of a recession and hurt prices for stocks, bonds and other investments. That latter factor was one of the issues hurting Silicon Valley Bank — high rates forced down the value of its bond investments.
Wall Street increasingly expects this week’s turmoil to push the Federal Reserve to hike interest rates next week by only a quarter of a percentage point. That would be the same sized increase as last month’s, and it would be counter to expectations earlier this month for a hike of 0.50 points, as it had been potentially signaling.
Some of Wall Street’s wildest action this week has been in the bond market. The yield on the 10-year Treasury rose to 3.57% Thursday from 3.47% late Wednesday, after dropping as low as 3.37% earlier in the day. It helps set rates for mortgages and other loans.
All told, the S&P 500 rose 68.35 points to 3,960.28. The Dow gained 371.98 to 32,246.55, and the Nasdaq jumped 283.22 to 11,717.28.
These 5 charts show the ups and downs of the US stock market over 10 years
These 5 charts show the ups and downs of the US stock market over 10 years
The U.S. stock market is a complicated beast, and with recent events like the COVID-19 pandemic, we've seen some volatility in the last few years. Stocks dipped quite a bit during the pandemic but have recovered since.
To get an idea of how the stock market has fared in the last 10 years, watch trends of major market indices—or certain groups of companies' stocks that give a sample of how the entire market is performing. Perhaps the most well-known market index is the S&P 500, a group of the 500 largest companies on the U.S. stock market.
While the S&P 500 is widely regarded as the best indicator of how the stock market is faring, other market indices can give you a different view based on the type of companies they track. Dow Jones, for instance, follows 30 of the largest companies in the country from various industries. The NASDAQ includes all stocks on the NASDAQ market, largely comprised of tech companies.
By watching the performance of these and other market indices, investors can get a good idea of how the U.S. stock market as a whole has performed over time. Olive Invest examined historical equities data from S&P Dow Jones, NASDAQ, and other data sources to see how the stock market has fared over the last decade.
How stocks have performed over the last decade
This chart shows a significant increase in stock index values from the last decade, despite a brief drop in 2020 during the pandemic. At the start of the COVID-19 pandemic, there was a steep drop-off in index values. However, they bounced back by the end of 2020 into 2021.
Index values have held relatively steady growth across the last 10 years. The NASDAQ, S&P 500, and Dow Jones Industrial Average have all doubled in value since 2012.
Tracking volatility
This chart measures the Chicago Board Options Exchange volatility index (VIX index), designed to show how current events and uncertainty affect stock prices. Essentially, the more fluctuation you see here, the more uncertainty investors and the public have about the future, which can significantly impact the market and even help project market crises.
Unsurprisingly, the most significant spike in volatility from the last decade was in March 2020, at the beginning of the COVID-19 pandemic. The last two years have shown a reduction in volatility since this spike, but in general, there is more uncertainty than 10 years prior.
Rates of return since 2000
The S&P 500's annual return on investment is a critical indicator of the stock market's performance. The average return since the S&P 500's establishment is 11%.
There are a few notable data points here—perhaps the most prominent of which is the Great Recession in 2008. That financial crisis resulted in the most significant drop in the S&P 500 return of the last 20 years. Since the recession, however, the rate of return has been above average almost every year.
S&P stocks by sector
The S&P 500 tracks the top 500 U.S. companies on the stock market. Knowing what types of businesses make up the majority of the index is essential to understanding which sectors have the most success.
In 2022, Information Technology made up 26.4% of the S&P 500—an industry high in the last 20 years. Similarly, health care is gaining ground in the previous few years, though it is still short of its historical high.
The financial sector has seen a downturn in the last decade—though this may change with the reclassification of major shares next year.
Number of publicly traded companies declines
In the last 20 years, there has been a significant drop in how many publicly traded domestic companies are on the U.S. stock market as more companies exit the market and there are fewer IPOs.
The last decade, however, has been far more stable. Experts suggest the change is connected to natural fluctuations and changing dynamics in the market's major industries. McKinsey attributes a significant portion of the drop-off to acquisitions.
Still, there have been fewer IPOs in the last several years, which can be a disappointment for new investors trying to get in on the ground floor.
This story originally appeared on Olive Invest and was produced and distributed in partnership with Stacker Studio.
