Stocks Rebound as Bank Jitters Ease

Rich Asplund - Barchart - Mon Mar 20, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.89%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.34%.

Stock indexes Monday closed moderately higher on a rebound in bank stocks as authorities attempt to boost confidence in the banking sector. UBS Group AG agreed to buy Credit Suisse Group AG for 3 billion francs ($3.2 billion) in a government-brokered deal. Also, the Federal Reserve and five other central banks boosted liquidity to ease growing strains in the global financial system. However, weakness in software and chip stocks undercut technology stocks and limited gains in the Nasdaq 100 as a rebound in bond yields weighed on tech stocks.

UBS Group AG agreed to buy Credit Suisse Group AG for 3 billion francs ($3.2 billion) in a government-brokered deal in which the Swiss central bank is offering 100 billion francs in liquidity assistance to UBS and is granting a 9-billion franc guarantee for potential losses from assets UBS is taking over.

On Sunday, the Federal Reserve, along with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank, announced they would "increase the frequency of 7-day maturity operations from weekly to daily" to boost dollar funding and ease strains in the global financial system.

However, concern about banking system contagion continued as First Republic Bank closed the day sharply lower by -47% after S&P Global cut First Republic Bank's long-term issuer credit rating for the second time in less than a week.

In a sign of funding strains, the Federal Home Loan Bank System (FHLB) issued $304 billion in debt last week. The FHLB was created to boost mortgage lending and is a key source of cash for regional banks. The debt issued last week included notes, which mature in less than a year, and $151 billion in longer-term bonds.

Global bond yields Monday rebounded from overnight lows and moved higher as attempts by authorities to shore up confidence in the banking sector boosted bank stocks and reduced safe-haven demand for government debt. As a result, the 10-year T-note yield Monday rose +5.0 bp to 3.479% after falling to a 6-month low in overnight trade of 3.286%. Also, the 10-year German bund yield rose +1.8 bp to 2.125% after falling to a 3-month low of 1.924%.

Overseas stock markets Monday settled mixed. The Euro Stoxx 50 closed up +1.34%. China’s Shanghai Composite stock index closed down -0.48%, and Japan’s Nikkei Stock Index closed down -1.42%.

Today’s stock movers…

Bank stocks recovered from overnight losses and moved higher after UBS Group AG agreed to buy Credit Suisse Group AG for 3 billion francs ($3.2 billion) in a government-brokered deal as authorities attempt to boost confidence in the banking sector. Cincinnati Financial Corp (CINF) and Fifth Third Bancorp (FITB) closed up more than +5%. Also, Principal Financial Group (PFG) and Lincoln National Corp (LNC) closed up more than +4%. In addition, Northern Trust (NTRS) closed up more than +3%.

NRG Energy (NRG) closed up more than +6% to lead gainers in the S&P 500 after Bank of America Global Research upgraded the stock to buy from neutral.

Fleetcor Technologies (FLT) closed up more than +6% after reaching a pact with shareholder D.E. Shaw Group to explore options to increase shareholder value, including a potential separation of its businesses.

US Bancorp (USB) closed up more than +4% after Baird upgraded the stock to outperform from neutral.

Westrock (WRK) closed up more than +4% after Citigroup upgraded the stock to buy from neutral.

First Republic Bank (FRC) closed down more than -47% to lead losers in the S&P 500 after S&P Global cut First Republic Bank's long-term issuer credit rating to B+ from BB+, the second cut in its credit rating in a week.

A rebound in bond yields Monday weighed on software and chip stocks. Atlassian Corp (TEAM) closed down more than -5%, and Datadog (DDOG) closed down more than -3%. Also, Microsoft (MSFT) closed down more than -2% to lead losers in the Dow Jones Industrials. In addition, Advanced Micro Devices (AMD), ServiceNow (NOW), and Intel (INTC) closed down more than -1%.

PDD Holdings (PDD) closed down more than -14% to lead losers in the Nasdaq 100 after reporting Q4 revenue of 39.82 billion yuan, well below the consensus of 41.95 billion yuan.

Amazon.com (AMZN) closed down more than -1% after announcing it would cut its workforce by an additional 9,000 workers.

Dish Network (DISH) closed down more than -1% at a 24-year low after New Street Research projected a Q1 expense of $75 million for the ransomware attack on the company last month.

Across the markets…

June 10-year T-notes (ZNM23) on Monday closed down -23 ticks, and the 10-year T-note yield rose by +5.0 bp to 3.479%. June 10-year T-notes Monday fell back from a 7-week high, and the 10-year T-note yield rebounded from a 6-month low of 3.286%. T-note prices gave up overnight gains and moved lower as attempts by authorities to boost confidence in the banking sector sparked a rally in stocks and reduced safe-haven demand for government debt. Reduced liquidity concerns lifted stocks and weighed on T-notes after the Fed and five other central banks boosted dollar funding by increasing the frequency of 7-day maturity operations from weekly to daily.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.