Stocks rallied yesterday relieved that news on banks was mostly positive. Big banks joined lifting ailing colleague First Republic to its feet, investing their own funds in the struggling bank.
Is the party about to start or is it over? Well, it has been one heck of a week. Last week went out with a bang as SVB was shut down leaving a gaping hole in Wall Street’s collective craw. But alas, just as the Sunday scaries were kicking in, the feds announced a backstop, bailout, or whatever you want to call it, for depositors… not so much investors, who are now waiting to see what happens with the bank’s assets and what the new owner(s) will do. Also, while you were grating parmigiana cheese over your big bowl of Sunday Pasta Sauce (or gravy, if you are from a certain borough of New York or certain counties from New Jersey), you might have noticed that Signature Bank New York was closed down by the New York Department of Financial Services. Similar to SVB, uninsured deposits would be made available through the government backstop. So, there was a bit of tension in the air on Monday morning when the opening bell rang in lower Manhattan’s New York Stock Exchange. Ya think?
That bell kicked off a whirlwind week which saw relief rallies, fades, and more rallies. A near-failure by Credit Suisse gave large US banks a bit of selling pressure for a day. All the while a witch hunt was underway for any company that held client funds, despite their health or governing entities. The newly exposed weakness in the banking sector brought forth the question of whether the Fed should be raising interest rates or whether it should just chill out for the time being. Futures and swaps traders quickly placed their bets, initially taking all rate hikes off the table for 2023, when just a few days earlier a +50 basis-point hike at next week’s meeting seemed like a sure thing.
Amidst all the turmoil, we received inflation data… you know, the monster that was under the bed before the SVB collapse. That monster turned out to be not as scary as expected. Consumer Price Index / CPI came in pretty much as expected, still high but slowing. Producer Price Index / PPI came in much lower than expected. PPI is thought by many to be a leading indicator of inflation because it reflects costs to producers (who set prices). Those reports, should in theory, take a bit of stress off the Fed, which must make a monumental decision next week.
The futures and swaps markets, which earlier in the week predicted no rate hikes for the year, readjusted and now gives a good chance of a +25 basis point hike (~82%) next week. That confidence was surely helped by the European Central Bank / ECB, which raised its key lending rate by +50 basis points yesterday without causing any mass hysteria. For the record, the bank was pretty clear, almost promising the hike leading up to the decision. Interestingly, the swaps markets were only predicting a +25 basis-point move. So, does that mean that the Fed can possibly raise rates by a ½ percentage point next week given all this craziness and uncertainty? You bet they can, but we will have to wait and see just how committed the gray-suited policy makers are.
It has to be mentioned that while all this drama was swirling through the markets, technology shares got a solid boost in the few days. The rally was spurred along by treasury yields which fell sharply starting last Friday. The sector was also helped along by some positive earnings and strong forward guidance. All this can change on a dime by next Wednesday with surprise moves or sharp words from the Fed. Today, being Friday and St. Patrick’s Day, will hardly be a day of rest as it is one of four annual triple witching days, during which stock options, stock index options, and stock futures all expire. As you might guess there have been a growing number of negative bets accumulating, which should prove for an interesting… and volatile session. If the past several years is any guide, both the Nasdaq and the S&P have fallen on average on triple witching days. Maybe, add little less salt and an extra grated carrot to this Sunday’s sauce.
FedEx Corp (FDX) shares are higher by +12.33% in the premarket after the company announced a sizable EPS beat for the quarter. The company raised full year and current year guidance. Though the company’s express business was weakened last quarter by slower demand, ground shipping was strong, and the company continued to focus on cost cutting measures. In the past month 51% of analysts revised their target prices, 16 up, 0 down, 14 unchanged, and 1 dropped. Dividend yield: 2.25%. Potential average analyst target upside: +11.8%.
NVIDIA Corp (NVDA) shares are higher by +1.66% in the premarket after Morgan Stanley upgraded the stock to OVERWEIGHT and raised its price target citing the growing trend of AI. NVIDIA’s chips are a key element in AI data centers. Dividend yield: 0.06%. Potential average analyst target upside: +1.8%.
Stocks rallied yesterday as the news feed was thin on negative bank news… for a change. The S&P500 rose by +1.76%, the Dow Jones Industrial Average climbed by +1.17%, the Nasdaq Composite Index traded higher by +2.48%, and the Russell 2000 Index advanced by +1.45%. Bonds slipped and 10-year Treasury Note yields added +12 basis points to 3.57%. Cryptos gained +2.5% and Bitcoin added +1.49%.
- Industrial Production (Feb) is expected to have increased by +0.2% after coming in flat last month.
- Leading Economic Index (Feb) is expected to show a -0.3% decline for a second straight month.
- University of Michigan Sentiment (March) came in unchanged for the month at 67.0.
- Next week: more housing numbers, more regional Fed reports, Flash S&P Global PMIs, and the FOMC Meeting. Check in on Monday for calendars and details.
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