U.S. stocks rise sharply in early trading just days after Federal Reserve raises prospect of a financial panic

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      It's been a banner day on Wall Street.

      As of this writing, the Dow Jones Industrial Average is up more than 700 points since the close on Friday (May 15). The NASDAQ and S&P 500 indexes are also up substantially in early trading.

      The markets received a boost after a Massachusetts-based biotech company, Moderna Inc., said that an early-stage trial for a COVID-19 vaccine is showing promise.

      The mRNA-1273 vaccine "was generally safe and well tolerated" and "provided full protection against viral replication in the lungs in a mouse challenge model", according to the company.

      Moderna's shares are up 22.81 percent on NASDAQ to US$81.91.

      Canadian stock exchanges are closed for the Victoria Day holiday.

      The jump in stock-market values came less than three days after the U.S. Federal Reserve issued a sharp warning about the risks of investing in equities.

      "Elevated valuation pressures are signaled by asset prices that are high relative to economic fundamentals or historical norm and are often driven by an increased willingness of investors to take on risk," the U.S. central bank's Financial Stability Report states.

      "As such, elevated valuation pressures imply a greater possibility of outsized drops in asset prices."

      The report also highlighted excessive borrowing by businesses and households, as well as excessive leverage within the financial sector.

      And it warned of the consequences of all of these factors coming together, even raising the prospect of a financial panic.

      "Funding risks expose the financial system to the possibility that investors will 'run' by withdrawing their funds from a particular institution or sector," the report states.

      "Many financial institutions raise funds from the public with a commitment to return their investors' money on short notice, but those institutions then invest much of the funds in illiquid assets that are hard to sell quickly or in assets that have a long maturity," the report continues.

      "This liquidity and maturity transformation can create an incentive for investors to withdraw funds quickly in adverse situations," the report suggests. "Facing a run, financial institutions may need to sell assets quickly at 'fire sale' prices, thereby incurring substantial losses and potentially even becoming insolvent."

      The document outlines various actions by the Federal Reserve to promote the resilience of the financial system—and particularly large bank holding companies, U.S. operations of foreign banking organizations, and financial-market utilities.

      "Specifically, in the post-crisis period, for the largest, most systemically important BHCs, these actions have included requirements for more and higher-quality capital, an innovative stress-testing regime, new liquidity regulation, and improvements in the resolvability of BHCs."