STORY: U.S. stocks ended higher on Monday after a deal to buy embattled Credit Suisse and efforts by central banks to boost confidence in the financial system relieved investors.
The Dow jumped 1.2%, the S&P 500 climbed 0.9% and the Nasdaq gained 0.4%.
UBS late on Sunday agreed to buy rival Credit Suisse for $3.23 billion, in a merger engineered by Swiss authorities to avoid more turmoil in the banking group.
Major central banks also moved to bolster cash flow around the world.
But shares of First Republic plunged 47% on Monday - with trading halted several times - despite the bank receiving a $30 billion lifeline from financial institutions last week.
Monday’s slide followed a downgrade of First Republic by S&P Global that fanned worries about the bank's liquidity.
Investors are also focused on this week's Federal Reserve decision. Before the turmoil with the banks earlier this month, many market participants had been factoring in a 50 basis-point interest rate hike from the Fed at its March meeting this week. Now, some investors think the Fed will pause and not hike rates this month at all.
“This week’s the Fed’s kinda stuck between a rock and a hard place….”
But Austin Graff, founder and chief investment officer of Opal Capital, thinks the bank will do neither.
“If they go with the expected 50 basis-point increase, they could just be compounding the problem that was created over the last week and a half with bank instability, as they tighten up credit conditions even farther than where they are today. If they go with the no-rate increase, market participants may read into that as though the Fed knows something about the economy that other market participants do not know and see it as a negative event.”
As a result, Graff believes a 25 basis-point hike is likely – with Fed Fund futures on Monday pointing in the same direction.
Outside of banks, other movers included Amazon, whose shares dropped following the company's announcement that it plans to slash another 9,000 jobs.