Wall St set to open lower on bank contagion fears

Wall Street was set to open lower on Monday as bank stocks tumbled on fears of contagion risk following Silicon Valley Bank's (SVB) collapse, while expectations rose for a pause in interest rate hikes in March.

The sudden shutdown of SVB Financial (SIVB.O) on Friday after a failed capital raise triggered concerns about risks to other banks from the Federal Reserve's sharpest rate hike cycle since the early 1980s.

Regulators over the weekend stepped in to restore investor confidence in the banking system, saying Silicon Valley Bank depositors will have access to their funds on Monday.

"When a step (is taken) this big, this quickly, your first thought is crisis averted. But your second thought is, how big was that crisis, how big were the risks that this step had to be taken?" said Rick Meckler, partner at Cherry Lane Investments.

"The only positive for the markets I've heard come out of this is the belief that it will slow the rise of rates as the Fed seeks to avoid any bigger damage in the financial sector."

Trading in shares of SVB's peer Signature Bank (SBNY.O), which was shut down by regulators on Sunday, was halted before the bell.

First Republic Bank (FRC.N) dropped 61.3% in pre-market trading as news of fresh financing failed to reassure investors, while Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O) fell 63.9% and 42.7%, respectively.

Shares of big US banks including JPMorgan Chase & Co (JPM.N), Morgan Stanley (MS.N) and Bank of America (BAC.N) fell between 1% and 5%.

The S&P 500 bank sector (.SPXBK) recorded its biggest weekly percentage fall since March 2020 on Friday.

The benchmark S&P 500 (.SPX) logged its worst week since September, falling 4.6% and erasing nearly all of its year-to-date gains as news of SVB's collapse hit investor sentiment already weakened by worries that the Fed could go for a big hike at its meeting next week.

Traders currently see a 76% chance of no rate hike at the Fed's meeting next week, with rate cuts priced in for the second half of the year.

The projections of a terminal rate have receded to 4.65% by March from around 5.5% in September earlier.

Goldman Sachs analysts said they no longer expect the Fed to raise rates by 25 basis points at its next policy meeting on March 21-22.

Investors await crucial inflation data due on Tuesday for more clues on the Fed's monetary tightening plans.

At 8:44 a.m. ET, Dow e-minis were down 315 points, or 0.99%, S&P 500 e-minis were down 36.5 points, or 0.94%, and Nasdaq 100 e-minis were down 39 points, or 0.33%.

Among individual stocks, Pfizer Inc. (PFE.N) fell 1.8% after the drug maker said it would buy Seagen Inc. (SGEN.O) for nearly $43 billion.