By Ankika Biswas and Sruthi Shankar
(Reuters) -The S&P 500 and the Dow edged higher on Monday as JPMorgan rose after the bank said it will buy most of First Republic Bank’s assets, while caution prevailed ahead of the Federal Reserve’s policy decision later this week.
JPMorgan Chase & Co’s shares rose 3.1% to a near two-month high after the deal was announced earlier in the day. The S&P 500 Banks index gained 1.1%, while the KBW Regional Banking index shed 1.5%.
Shares of regional banks PNC Financial and Citizens Financial, that were among the bidders for First Republic, dropped 4.7% and 5.2%, respectively.
The rescue comes less than two months after a deposit flight from U.S. lenders Silicon Valley Bank and Signature Bank forced the Fed to step in with emergency measures to stabilize markets.
“The positive reaction in (JPM) stock is in part a positive reaction to the stabilization in the sector, as much as any kind of advantage gained from the purchase,” said Rick Meckler, partner at Cherry Lane Investments.
“But regional banks will face higher cost of doing business for some time until confidence is rebuilt or there is a different regulatory scheme.”
Weighing on the market, energy stocks fell 1.3% as crude prices dropped nearly 2%, hurt by weak economic data from China and expectations of another U.S. interest rate hike.
Investors are keenly awaiting the conclusion of the Fed’s two-day policy meeting on Wednesday for signs that its aggressive monetary policy tightening is coming to an end soon.
Recent economic data reinforced bets of another 25-basis point interest rate hike, with investors pricing in a 90% chance of such a move, according to CME Group’s FedWatch tool.
First Republic’s woes kicked off last week on a bleak note, but upbeat earnings from Alphabet Inc, Microsoft Corp and Meta Platforms Inc helped the benchmark S&P 500 notch its second consecutive month of gain on Friday.
Analysts now expect first-quarter earnings for S&P 500 companies to fall 1.9% from a year earlier, compared with a 5.1% fall expected at the start of April, according to Refinitiv data. Apple Inc is set to report later this week.
At 12:15 a.m. ET, the Dow Jones Industrial Average was up 87.32 points, or 0.26%, at 34,185.48, the S&P 500 was up 7.79 points, or 0.19%, at 4,177.27, and the Nasdaq Composite was down 2.45 points, or 0.02%, at 12,224.14.
Data on Monday showed U.S. manufacturing pulled off a three-year low in April as new orders improved slightly and employment rebounded, but activity remained depressed, raising the risk of a recession this year.
Norwegian Cruise Line Holdings rose 8.1% after raising its full-year profit forecast, betting on higher pricing and pent-up demand from wealthy customers.
General Motors Co gained 2.4% following reports that Morgan Stanley upgraded the company’s shares. The automaker also laid off several hundred full-time contract workers over the weekend including at its engineering hub in suburban Detroit.
Declining issues outnumbered advancers for a 1.05-to-1 ratio on the NYSE. Advancing issues outnumbered decliners for a 1.03-to-1 ratio on the Nasdaq.
The S&P index recorded 32 new 52-week highs and one new low, while the Nasdaq recorded 69 new highs and 107 new lows.
(Reporting by Ankika Biswas and Sruthi Shankar in Bengaluru; Editing by Saumyadeb Chakrabarty and Shounak Dasgupta)
