Stocks Fall as Bank Concerns Linger

Rich Asplund - Barchart - Fri Mar 17, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.99%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.42%.

U.S. stocks are moderately lower on concern that turmoil in the banking sector will push the global economy into recession. A decline in regional bank stocks is weighing on the overall market. First Republic Bank is down more than -21% and is dragging peers lower as sentiment toward the stock remains fragile despite Thursday’s proposal for $30 billion of aid from a consortium of the biggest U.S. banks. However, losses in the Nasdaq are limited as a drop in bond yields supports interest rate-sensitive technology stocks.

Today’s quarterly triple witching, where contracts expire for index futures, equity index options, and stock options, could ramp up volatility in trading.

In a sign of escalating funding strains, Fed data showed that U.S. banks borrowed a record $152.85 billion from the discount window in the week of March 15.

Global bond yields are falling today as concerns mount that the turmoil rocking the banking sector will tip the global economy into recession. The 10-year T-note yield today is down -16.5 bp at 3.412%, and the 10-year German bund yield is down -20.2 bp at 2.087%. T-note yields extended their declines after today’s economic news showed a decline in inflation expectations.

On the positive side for stocks, FedEx is up more than +7% after reporting stronger-than-expected Q3 adjusted EPS and raising its full-year adjusted EPS forecast. Also, cryptocurrency-exposed stocks are moving higher, with the price of Bitcoin surging more than +6% to a 9-month high.

Today’s U.S. economic news was mixed for stocks. On the bearish side, the University of Michigan’s March U.S consumer sentiment index unexpectedly fell -3.6 to 63.4, weaker than expectations of no change at 67.0. However, inflation expectations declined after the University of Michigan’s March U.S 1-year inflation expectations indicator fell -0.3 to a nearly 2-year low of 3.8%, and the 5-10 year inflation expectations indicator fell -0.1 to a 6-month low of 2.8%. Also, Feb manufacturing production unexpectedly rose +0.1% m/m, stronger than expectations of a -0.1% m/m decline.

Overseas stock markets are mixed. The Euro Stoxx 50 today is down -1.52%. China’s Shanghai Composite stock index closed up +1.73%, and Japan’s Nikkei Stock Index closed up +1.20%.

Today’s stock movers…

First Republic Bank (FRC) is down more than -21% to lead losers in the S&P 500 as sentiment toward the bank remains fragile despite the proposal for $30 billion of aid from a consortium of the biggest U.S. banks.

Bank stocks are falling this morning as concerns persist about contagion from the collapse of Silicon Valley Bank and the liquidity problems at Credit Suisse Group AG. Comerica (CMA) is down more than -7%. Also, KeyCorp (KEY), Lincoln National Corp (LNC), Truist Financial (TFC), US Bancorp (USB), Zions Bancorp (ZION), Fifth Third Bancorp (FITB) and Huntington Bancshares (HBAN) are down more than -5%. In addition, JPMorgan Chase (JPM) is down more than -3% to lead losers in the Dow Jones Industrials.

Meta Platforms (META) is down more than -2% as the U.S. Federal Trade Commission asks the company for information about how they screen for advertising promoting fraudulent products.

Ford Motor (F) is down more than -4% after the company said it is recalling 1.28 million 2013-18 Fusion and Lincoln MKZ vehicles due to the front brake hoses possibly rupturing and leaking brake fluid and recalling 222,454 F-150 vehicles made in 2021 due to the windshield wiper arms possibly breaking.

RingCentral (RNG) is down more than -3% after Oppenheimer downgraded the stock to perform from outperform.

Merck & Co (MRK) is down more than -1% after it said results from a Phase 2 trial of its MK-7864A, a co-formulation of two therapies to treat metastatic non-small cell lung cancer, did not reach statistical significance for the primary endpoint of progression-free survival.

FedEx (FDX) is up more than +7% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $3.41, well above the consensus of $2.71, and raised its full-year adjusted EPS forecast to $14.60-$15.20 from a previous forecast of $13.00-$14.00, stronger than the consensus of $13.57.

Newmont (NEM) is up more than +2% to lead mining stocks higher, as the price of gold is up more than +1% to a 6-week high.

Nvidia (NVDA) is up more than +2% to lead gainers in the Nasdaq 100 after Morgan Stanley upgraded the stock to overweight from equal weight.

Cryptocurrency-exposed stocks are moving higher today, with the price of Bitcoin up more than +6% to a 9-month high. Marathon Digital (MARA), Riot Platforms (RIOT), Coinbase Global (COIN), Hive Blockchain (HIVE), and Stronghold Digital (SDIG) are up +5% or more.

Warner Bros Discovery (WBD) is up more than +1% after Wolfe Research upgraded the stock to outperform from peer perform.

Across the markets…

June 10-year T-notes (ZNM23) today are up +1-4/32 points, and the 10-year T-note yield is down -16.5 bp at 3.412%. T-note prices are higher hon concern that the recent turmoil to rock the banking sector will push the global economy into recession. T-notes extended their gains after the University of Michigan’s March U.S 1-year inflation expectations indicator fell -0.3 to a 2-year low of 3.8%.

The dollar index (DXY00) today is down by -0.20%. A decline in T-note yields today is weighing on the dollar. Also, hawkish ECB comments boosted EUR/USD today and undercut the dollar. However, losses in the dollar are limited as today’s stock weakness has fueled liquidity demand for the dollar.

EUR/USD (^EURUSD) today is up by +0.13%. Dollar weakness today has sparked short covering in the euro. Also, hawkish comments today from several ECB policymakers gave EUR/USD a boost when they said they expect the ECB to continue raising interest rates as core inflation in the Eurozone remains "stubbornly sticky."

Eurozone Q4 labor costs rose a record +5.7% y/y, which is hawkish for ECB policy and supportive for EUR/USD.

ECB Governing Council member Simkus said "underlying price growth "shows no sign of slowing yet," so it is "too early for the ECB to conclude that the backbone of rapid inflation has been broken and interest-rate hikes can be stopped."

ECB Governing Council member Simkus expects the ECB to continue raising interest rates as "inflation trends haven't disappeared."

ECB Governing Council member Kazimir said core inflation in the Eurozone is "stubbornly sticky," and the ECB must continue tightening monetary policy despite current events.

USD/JPY (^USDJPY) today is down by -1.02%. A sharp decline in T-note yields today is pushing the yen higher. Also, ongoing U.S. and European banking woes are boosting the safe-haven demand for the yen. In addition, the yen garnered support from today’s better-than-expected economic news that showed the Jan tertiary industry index rose +0.9% m/m, stronger than expectations of +0.5% m/m and the largest increase in 8 months.

April gold (GCJ3) this morning is up +30.2 (+1.57%), and May silver (SIK23) is up +0.413 (+1.90%). Precious metals prices this morning are moderately higher, with gold jumping to a 6-week high. A weaker dollar and lower global bond yields today are giving precious metals a boost. Also, the banking turmoil in the U.S. and Europe is boosting the safe-haven demand for precious metals. Fund buying of gold is supporting prices as gold holdings in exchange-traded funds (ETFs) have risen four straight days through Thursday to a 3-week high.

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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.