S&P 500 futures and Nasdaq futures as well as Dow Jones futures fell early Friday ahead of Friday’s February jobs report. SVB Financial continued to falter after triggering a sell-off in bank stocks in the broader market on Thursday.
X
Oracle (ORCL) and upside down beauty (Reverse) reported earnings of late.
The stock market rally came to a sharp end on Thursday as questions about the financial health of banks suddenly came to the fore. The S&P 500 and Nasdaq declined to key support levels.
bank shares declined SVB Financial (SIVB), the parent of Silicon Valley Bank, cratered on a series of negative headlines during the long-sick crypto bank Silvergate Capital (SI) said it would be closed. Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and charles schwab (SCHW) were among the high-profile losers.
SIVB stock continued to decline of late as fears of a bank run grew.
Investors should be careful, wait for the bullish momentum to show new strength in the market.
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ORCL stock fell 4% overnight after Oracle topped earnings but underperformed revenue. Oracle stock fell 5.9% to 81.75 on Thursday, well below its 50-day line. The shares are trading at 91.32 buy point from a deep cup-with-handle base.
The Ulta stock declined 2% in extended action. Ulta Beauty topped earnings and revenue, but same-store guidance was light. The beauty products retail giant fell 0.8% to 519.93 on Thursday, just below the 21-day line. There’s no clear buying point in Ulta stock.
jobs report
The Labor Department will release its February jobs report at 8:30 a.m. ET. Economists expect to see non-farm payrolls rise to 223,000, a big slump from January’s 517,000, but it would still be a strong two-month start to the year. The unemployment rate should be at a 53-year low of 3.4%. Average hourly earnings should climb 0.3%, but annual wage gains should increase by 4.7%.
On Thursday, Labor reported that initial jobless claims rose more than expected to their highest number since December. Challenger, Gray and Christmas reported that the announced layoff plans are the highest in a year since 2009.
The February jobs report, along with next week’s CPI inflation report, could lock in hopes of a half-point rate hike on March 22.
dow jones futures today
Dow Jones futures fell 0.7% versus fair value. S&P 500 futures fell 0.7% and Nasdaq 100 futures fell 0.45%.
The 10-year Treasury yield fell 10 basis points to 3.82%. The 2-year yield fell 11 basis points to 4.79%.
Crude oil futures fell marginally.
The February jobs report will be sure to swing Dow Jones futures, Treasury yields and Fed rate hike expectations.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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stock market rally
The stock market rally got off to a good start on Thursday on rising unemployment claims, but soon waned on bank concerns. Major indices continued to deteriorate and closed near session’s lows.
The Dow Jones Industrial Average slipped 1.7% in Thursday’s stock market trading. The S&P 500 index fell 1.85%, along with SIVB stock. First Republic Bank (FRC) and Schwab were the biggest losers. The Nasdaq Composite slipped 2.05%. The small-cap Russell 2000, which has a lot of financial components, fell 2.8%.
US crude oil prices fell 1.2% to $75.72 per barrel.
The 10-year Treasury 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%.
Fed rate hike expectations have changed, but not much.
Markets see a 60% chance of a 50-basis-point move on March 22, down from Wednesday’s 78.6%. Odds rose nearly 30% on Tuesday ahead of Fed chief Jerome Powell’s flamboyant testimony. Markets are now pricing in 75 basis points of rate hikes over the next three Fed meetings, with another quarter-point increase likely during that time.
bank stocks
SIVB stock fell 60% to 106.04, its lowest price since 2016. SVB Financial announced a $1.75 billion share sale late Wednesday. The Silicon Valley Bank parent also cut guidance. Deposits are dwindling as startups face funding drought. There are also major concerns about SVB’s loans to the tech industry.
SIVB stock fell 22% overnight in volatile, heavy trade. Bloomberg reported that Peter Thiel’s Founders Fund is advising companies to withdraw money from Silicon Valley Bank. SVB Financial has yet to determine the pricing of that share offering.
Silvergate Capital, which has been in free-fall for months, announced late Wednesday that it would be shutting down with the liquidation of its Silvergate bank. SI stock fell 42%.
SVB and Silvergate News slammed financials, already under pressure as extremely inverted yield curve exacerbates the traditional borrow short/lend long lending strategy.
keycorp (KE), which earlier in the week warned on net interest margin, fell 7.2% on Thursday. Western Alliance Bancorp (WAL) fell nearly 13%, and FRC stock fell 16.5%.
JPM stock slid 5.4%. On Tuesday, JP Morgan fell below the 138.76 buy point and its 50-day line. BAC stock retreated 6.2% to its lowest level since October. WFC stock also declined 6.2%, falling below its 200-day line after breaking below 50 earlier in the week.
SCHW stock fell 12.8%, below the 200-day line and at the bottom of its base. Bloomberg reported that JPMorgan offered a block sale of 8.5 million Schwab shares. SCHW stock is at its worst level since October.
Investors will look more closely at banks’ books and capital levels, something that hasn’t been a real concern until now. Banks are raising deposit and CD rates significantly, while longer-term rates lag behind. Many banks are sitting on massive unrealized losses on loans and other securities.
If banks rein in lending, it could lead to a sharp decline in the economy. Meanwhile, the woes at SVB Financial and Silvergate Capital raised concerns about their tech and crypto clients.
ETF
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.1%. The iShares Extended Tech-Software Sector ETF (IGV) slid 2.3%, with ORCL stock being a large IGV component. The VanEck Vectors Semiconductor ETF (SMH) gave up 1.9%.
Reflecting more-speculative story stocks, the ARK Innovations ETF (ARKK) fell 4.2% and the ARK Genomics ETF (ARKG) fell 3.8%.
The SPDR S&P Metals & Mining ETF (XME) fell 2.6% and the Global X US Infrastructure Development ETF (PAVE) lost 2.2%. The US Global Jets ETF (JETS) dropped 3.1%. The SPDR S&P Homebuilders ETF (XHB) went down 1.6%. The Energy Select SPDR ETF (XLE) retreated 1.4% and the Health Care Select Sector SPDR Fund (XLV) retreated 1%.
The Financials Select SPDR ETF (XLF) fell 4.1%, with JPM Stock, Wells Fargo, Charles Schwab and Bank of America all leading 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 along with KeyCorp and Western Alliance.
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Market Rally Analysis
The stock market rally had a highly negative day, with major indices and major stocks trading negative losses.
The S&P 500 opened higher above its 50-day line, but soon hit resistance at the 21-day moving average and dropped below its 200-day line and the March 2 low.
The Nasdaq initially rose above its 21-day line, but then fell below its 200-day line. The tech-heavy Composite briefly dipped below its 50-day low before settling just above that level.
The Dow Jones fell from its 200-day low to a four-month low.
The Russell 2000 declined decisively below its 50-day line, to its 200-day line.
Some leaders protested, but most did not.
Banking concerns triggered by SIVB stock, Silvergate, and KeyCorp don’t necessarily mean a financial crisis is on the way. Banks, especially giants like JP Morgan and Bank of America, are far better capitalized than they were in the financial crisis of 2007–2009. But the fact that the term “financial crisis” is being mentioned is a big turnoff.
If banks aggressively rein in lending, this will have a quick impact on the wider economy. It would also heighten the already huge risk that the Federal Reserve would pass on a rate hike, triggering a hard landing.
Friday’s jobs report will be important, but it’s the market’s reaction that matters. Keep in mind that if the economy suddenly stalls, a decrease in employment data will not be a warning.
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What do we do now
With the S&P 500 and other major indexes headed south once again, this is not the time to add exposure. Investors should cut losses on recent buys in struggling stocks.
Perhaps the market rally will be supported once again with a pet jobs report or upcoming inflation data, but hope is not a strategy. Major indices are on the verge of breaking down decisively.
On the upside, wait for the S&P 500 and Nasdaq’s 21-day lines to resume. If this happens, new buying opportunities will emerge. So keep working on those watchlists.
Read The Big Picture every day to stay in sync with market direction and key stocks and sectors.
Please follow Ed Carson on Twitter @IBD_ECarson For stock market updates and much more.
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