Dow Jones futures fell early Friday along with S&P 500 futures and Nasdaq futures ahead of Friday’s jobs report. SVB Financial tumbled further after triggering a sell-off in bank stocks that battered the broader market on Thursday.
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oracle (ORCL) and Ultimate beauty (ULTA) belatedly reported results.
The stock market rally reversed sharply lower on Thursday as questions about banks’ finances suddenly came to the fore. The S&P 500 and Nasdaq fell to critical support levels.
Bank stocks plummeted SVB Finance (SIVB), parent company of Silicon Valley Bank, caught a slew of negative headlines as the crypto bank struggled for a long time Silvergate Capital (SI) said it would shut down. Bank of America (BAK), JPMorgan Chase (JPM), Wells Fargo (WFC) and Karl Schwab (SCHW) were among the prominent losers.
SIVB stock continued to fall late as fears of a bank run mounted.
Investors should be cautious and wait for the market rally to show renewed strength.
key income
ORCL stock fell 4% overnight after profits topped Oracle but sales lagged. Oracle shares slipped 5.9% to 81.75 on Thursday, falling below its 50-day moving average. Shares are working at a buy point of 91.32 from a deep cup and handle base.
ULTA stock fell 2% in extended action. Ulta Beauty’s revenue and earnings topped views, but the forecast for the same store was low. The beauty retail giant fell 0.8% to 519.93 on Thursday, just below its 21-day moving average. ULTA stock does not have a clear buy point.
job report
The Department of Labor will release the February jobs report at 8:30 am ET. Economists expect the nonfarm payrolls to rise by 223,000, a big slowdown from January’s 517,000, but that would still be a strong two-month start to the year. The unemployment rate should hold at a 53-year low of 3.4%. Average hourly wages should rise 0.3%, but annual salary growth should increase to 4.7%.
On Thursday, Labor reported that initial jobless claims rose more-than-expected to the highest since December. Challenger, Gray & Christmas reported that announced layoff plans are the highest for a year since 2009.
February’s jobs report, along with next week’s CPI inflation report, could solidify expectations for a half-point rate hike on March 22nd.
Dow Jones futures today
Dow Jones futures fell 0.7% from fair value. S&P 500 futures were down 0.7% and Nasdaq 100 futures were down 0.45%.
The 10-year government bond yield fell 10 basis points to 3.82%. The 2-year yield fell 11 basis points to 4.79%.
Crude oil futures fell slightly.
The February jobs report is sure to impact Dow Jones futures, Treasury yields and Fed rate hike expectations.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
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stock market rally
The stock market rally got off to a decent start on Thursday with jobless claims rising, but soon turned lower on bank concerns. Major indices steadily deteriorated, closing near session lows.
The Dow Jones Industrial Average fell 1.7% in trading on Thursday. The S&P 500 Index fell 1.85%, with SIVB shares, Bank of the First Republic (FRC) and Schwab the biggest losers. The Nasdaq Composite slipped 2.05%. The small-cap Russell 2000, which includes many financial components, fell 2.8%.
US crude prices fell 1.2% to $75.72 a barrel.
The 10-year government bond yield fell 5 basis points to 3.92%. The two-year Treasury yield fell 16 basis points to 4.9%, while the six-month T-bill yield fell 3 basis points to 5.28%.
The Fed’s rate hike expectations changed, but not much.
Markets see a 60% chance of a 50 basis point move on March 22, compared to 78.6% on Wednesday. The rates rose from about 30% ahead of Fed Chair Jerome Powell’s radical statement on Tuesday. Markets are now pricing in rate hikes of 75 basis points over the next three Fed meetings, with another quarter point hike likely over that period.
bank stocks
SIVB shares plunged 60% to 106.04, its lowest price since 2016. SVB Financial announced a $1.75 billion share sale late Wednesday. Silicon Valley Bank’s parent company also lowered guidance. Deposits are dwindling as startups face a funding crunch. There are also major concerns about the SVB’s loans to the tech industry.
SIVB stock plunged 22% overnight in volatile, strong trading. Peter Thiel’s startup fund is advising companies to withdraw money from Silicon Valley Bank, Bloomberg reported. SVB Financial has yet to evaluate this share offering.
Silvergate Capital, which has been in freefall for months, announced late Wednesday that it was closing in on the liquidation of its Silvergate Bank. SI shares plunged 42%.
The SVB and Silvergate news hit financial stocks, which are already under pressure as the extreme inverted yield curve upends the traditional borrow short/lend long lending strategy.
KeyCorp (KEY), which warned of net interest margins earlier in the week, fell 7.2% on Thursday. Western Alliance Bancorp (WAL) fell nearly 13% and FRC stock plummeted 16.5%.
JPM stock slipped 5.4%. On Tuesday, JPMorgan fell below a buy point of 138.76 and its 50-day moving average. BAC shares fell 6.2% to their lowest level since October. WFC stock was also down 6.2%, falling below its 200-day moving average after falling below its 50-day moving average earlier in the week.
SCHW stock plunged 12.8%, falling below the 200-day moving average and its basis’s low. JPMorgan offered a block sale of 8.5 million Schwab shares, Bloomberg reported. SCHW stock is at its lowest since October.
Investors will look much more closely at banks’ books and capital levels, which hasn’t been a real problem so far. Banks are raising deposit and CD rates significantly while long-term rates lag behind. Many banks are sitting on significant unrealized losses on loans and other securities.
If banks cut lending, the economy could cool down quickly. Meanwhile, SVB Financial and Silvergate Capital’s troubles are raising concerns about their tech and crypto clientele.
ETFs
Among growth ETFs, innovator IBD 50 ETF (FFTY) tumbled 3.1%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.3%, with ORCL stock a big IGV component. The VanEck Vectors Semiconductor ETF (SMH) fell 1.9%.
ARK Innovation ETF (ARKK) slumped 4.2% and ARK Genomics ETF (ARKG) 3.8%, reflecting more speculative story stocks.
The SPDR S&P Metals & Mining ETF (XME) lost 2.6% and the Global X US Infrastructure Development ETF (PAVE) lost 2.2%. The US Global Jets ETF (JETS) fell 3.1%. SPDR S&P Homebuilders ETF (XHB) is down 1.6%. The Energy Select SPDR ETF (XLE) is down 1.4% and the Health Care Select Sector SPDR Fund (XLV) is down 1%.
The Financial Select SPDR ETF (XLF) plunged 4.1%, with JPM stock, Wells Fargo, Charles Schwab and Bank of America all notable holdings. The SPDR S&P Regional Banking ETF (KRE) fell 8.2% to a three-year low. SIVB stock is a notable KRE holding alongside KeyCorp and Western Alliance.
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Analysis of the market rally
The stock market rally had a very negative day, with a move lower that damaged major indices and major stocks.
The S&P 500 opened higher above its 50-day moving average, but soon met resistance at the 21-day moving average and reversed lower, breaching its 200-day moving average and its March 2nd low.
The Nasdaq initially rose above its 21-day moving average, but then returned below the 200-day moving average. The tech-heavy composite briefly undercut its 50-day mark before settling just above that level.
The Dow Jones fell below its 200-day moving average to a four-month low.
The Russell 2000 fell decisively below its 50-day moving average all the way to its 200-day moving average.
Some leaders persevered, but most didn’t.
Bank worries sparked by SIVB stock, Silvergate and KeyCorp don’t mean a financial crisis is imminent. Banks, particularly the giants like JPMorgan and Bank of America, are far better capitalized than they were in the 2007-2009 financial crisis. But the fact that the word “financial crisis” is mentioned at all is a big change.
If banks aggressively reined in lending, it would hit the broader economy quickly. It would also increase the already high risk of the Federal Reserve overshooting rate hikes and triggering a hard landing.
Friday’s job report will be important, but it’s market reaction that counts. Remember that lagging jobs data is no warning if the economy suddenly falters.
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What now
With the S&P 500 and other major indices heading lower once again, it’s not a time to increase exposure. Investors should try to limit losses on recent purchases that are causing problems.
Perhaps a tame jobs report or forthcoming inflation data will once again provide support for the market rally, but hope is not a strategy. Major indices are poised to break out sharply to the downside.
On the upside, wait for the S&P 500 and Nasdaq to retake their 21-day moving averages. When that happens, new buying opportunities arise. So keep working on those watch lists.
Read The Big Picture every day to keep up to date with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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