What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.56%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.41%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.30%.

Stock indexes Friday recovered from early losses and closed moderately higher.   An unscheduled Friday meeting of the Financial  Stability Oversight Council (FSOC), convened by Treasury Secretary Yellen, sparked short covering in bank stock.  The FSOC issued a statement late Friday afternoon that said “the U.S. banking system remains sound and resilient despite the fact that some institutions are under stress.”  Members of the FSOC include the heads of the Federal Reserve, the Federal Deposit Insurance Corp, and several other regulatory agencies.

Bank stocks Friday initially opened lower and weighed on the broader market on continued concern about the banking sector's stability.  Treasury Secretary Yellen on Wednesday alarmed the market when she said the U.S. government is not considering a “blanket” protection of deposits. Ms. Yellen on Thursday had little success in damage control when she said that the government is prepared for further steps to protect bank deposits if needed.

European bank stocks were also under pressure Friday after Bloomberg News reported that Credit Suisse Group AG and UBS Group AG were among banks under scrutiny in a U.S. Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions.  UBS Group AG closed down more than -3%. 

In a sign of strong foreign demand for dollars, Fed data late Thursday showed the Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion in the week through March 22.

Bank of America said EPFR Global data shows investors are fleeing into cash to escape the turmoil in financial markets as global cash funds had inflows of nearly $143 billion in the week through Wednesday, the largest increase since March 2020.  Over the past four weeks, investors have poured more than $300 billion into cash funds. 

Global bond yields are falling due to the banking turmoil. The 10-year T-note yield Friday fell to a 6-1/4 month low of 3.280% but moved up from that low as stocks recovered and finished the day down -6.0 bp at 3.367%.  Also, the 10-year German bund yield dropped -6.7 bp to 2.129%, and the 10-year UK gilt yield fell to a 6-week low of 3.132%. 

Friday’s U.S. economic news was better-than-expected and supportive for stocks after Feb capital goods new orders nondefense ex-aircraft unexpectedly rose +0.2% m/m, stronger than expectations of a decline of -0.2% m/m.  Also, the Mar S&P manufacturing PMI unexpectedly rose +2.0 to a 5-month high of 49.3, stronger than expectations of a decline to 47.0.

Comments Friday from St. Louis Fed President Bullard had a hawkish tilt when he said that financial stability issues could be tackled via additional steps to ease bank strains while tighter monetary policy can keep targeting high inflation.  Bullard also said he raised his forecast for peak interest rates this year to 5.625% from 5.375% "in reaction to stronger economic news."

Overseas stock markets Friday settled lower.  The Euro Stoxx 50 closed down -1.82%.  China’s Shanghai Composite stock index closed down -0.64% and Japan’s Nikkei Stock Index closed down -0.13%. 

Today’s stock movers…

Activision Blizzard (ATVI) closed up more than +5% to lead gainers in the S&P 500 and Nasdaq 100 after the UK’s Competition and Markets Authority updated its provisional findings on Microsoft’s acquisition of Activision after new evidence showed the buyout would not result in a substantial lessening of competition in console gaming in the UK.

Intuitive Surgical (ISRG) closed up more than +4% after William Blair on Thursday initiated coverage of the stock with a recommendation of outperform.

Bank stocks recovered from early losses and moved higher, which lifted the broader market.  Key Corp (KEY) closed up more than +5%, and Citizens Financial Group (CFG) closed up more than +4%. Also, Zions Bancorp (ZION) and M&T Bank (MTB) closed up more than +2%. In addition, Regions Financial (RF) and Lincoln National (LNC) closed up more than +1%. 

The decline in bond yields Friday boosted utility stocks. Ameron Corp (AEE), American Electric Power (AEP), Evergy (EVRG), CMS Energy (CMS), and DTE Energy (DTE) closed up more than +4%. Also, First Energy (FE), Consolidated Edison (ED), Edison International (EIX), WEC Energy (WEC), CenterPoint Energy (CNP), Duke Energy (DUK), Alliant Energy (LNT), Entergy (ETR), Xcel Energy (XEL), and Eversource Energy (ES) closed up more than +3%. 

Netflix (NFLX) closed up more than +2% as Bank of America sees positive signs for subscriber trends for the company as it cracks down on password sharing among accounts.

First Horizon (FHN) closed up more than +6% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $25.

Semiconductor stocks retreated Friday as they gave back some of their large gains over the past two sessions.  Lam Research (LRCX) closed down more than -4%. Also, ON Semiconductor (ON), KLA Corp (KLAC), Microchip Technology (MCHP), and NXP Semiconductors NV (NXPI) closed down more than -3%. In addition, Advanced Micro Devices (AMD), Applied Materials (AMAT), and Marvell Technology (MRVL) closed down more than -2%.

Incyte (INCY) closed down more than -2% after the FDA didn’t approve the company’s application for its ruxolitinib extended-release tablets and identified additional requirements for the approval.  

Scholastic (SCHL) closed down more than -22% after reporting a Q3 adjusted loss per share of -57 cents, a wider loss than the consensus of -38 cents, and cutting its full-year revenue forecast to grow about 4%, compared to a previous forecast of growth of 8% to 10%. 

Oxford Industries (OXM) closed down more than -12% after forecasting Q1 adjusted EPS of $3.60-$3.80, weaker than the consensus of $4.06.

Across the markets…

June 10-year T-notes (ZNM23) on Friday closed up +4 ticks, and the 10-year T-note yield fell by -6.0 bp to 3.367%.  June T-notes Friday rallied to a 6-3/4 month nearest-futures high, and the 10-year T-note yield tumbled to a 6-1/2 month low of 3.280%.  T-notes moved higher as concern about the health of the global banking system fueled safe-haven demand for government debt.  However, T-notes fell back from their best levels after Friday’s U.S. economic news showed the Mar S&P manufacturing PMI unexpectedly rose to a 5-month high.  Also, a rebound in bank stocks Friday that pushed the overall market higher weighed on T-note prices.

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