Dow loses 400 points on Friday as First Republic, other banks resume slide

Due to continuing worries about the condition of the US banking sector, investors reduced their holdings of First Republic and other bank shares on Friday, causing a decline in US stocks.

First Republic dropped by almost 33% to finish the week down by almost 72%. That represented a change from the relief bounce that occurred on Thursday when a group of banks announced they would provide $30 billion in deposits to First Republic as a show of faith in the financial system. The SPDR Regional Banking ETF (KRE), which lost 6% in the session and ended the week 14% lower as a result of Friday’s plunge, was negatively impacted.

The Dow Jones Industrial Average lost 384.57 points, or 1.19%, to close at 31,861.98 points. The S&P 500 slid 1.10% to end at 3,916.64 points, while the Nasdaq Composite was down 0.74% to 11,630.51 points. The US-listed shares of Credit Suisse closed down nearly 7% as traders parsed through the bank’s announcement that it would borrow up to $50 billion francs, or nearly $54 billion, from the Swiss National Bank. The stock lost 24% over the course of the week.

The S&P 500 rose 1.43% this week despite the down session. Ahead of the Federal Reserve policy conference next week, investors placed bets on technology and other growth-oriented stocks, which helped the Nasdaq Composite gain 4.41%. For the tech-heavy index, it was the strongest week since January 13. However, the Dow’s decline on Friday caused it to end the week in the red, down 0.15%.

Investors have been carefully monitoring bank stocks lately out of concern that other institutions may suffer the same fate as Silicon Valley Bank and Signature Bank, which both closed their doors last week. After regulators announced over the weekend that they would backstop deposits in the two banks, the market has been reacting to the most recent industry events.

Investors pulled back on Friday ahead of what could potentially be an eventful weekend as the bank crisis plays out. There is nervousness into the weekend of: How will this all translate on the performance outlook on Monday? The market is nervous about holding stocks into that time. The shakeup arrives at a time when investors are looking ahead to the Federal Reserve’s upcoming meeting on March 21-22. The question on the minds of traders is whether the central bank will proceed with an expected 25 basis point hike even as banking woes whiplash the market.

There is widespread awareness of what just happened with the banking sector. Nothing about the base case has changed, only for the fact that markets have had this kind of event in the banking sector causing contagion in terms of sentiment, but not yet really contagion in terms of other banks.

Despite the down session, the Dow was the only of the major indexes to close the week down. While the 30-stock index saw a weekly loss of 0.2%, the S&P 500 advanced 1.4% for the week and the Nasdaq Composite gained 4.4%.

First Republic Bank took another leg lower in afternoon trading, plunging more than 30% as investors positioned themselves in the final hour of trading this week. Friday’s nosedive has brought the stock down more than 70% from where it started the week. The drop has also weighed on the SPDR S&P Regional Banking ETF (KRE), which was down 6% on Friday and poised for a weekly loss of more than 14%.