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| photo: The New York Times |
Last week, the stock market experienced significant losses due to the poor performance of SVB Financial (SIVB) and Silvergate Financial (SI), a cryptocurrency bank. This led to substantial losses for bank stocks, particularly for West Coast financials such as First Republic Bank (FRC) and Western Alliance Bancorp (WAL), but also for Signature Bank (SBNY) and Charles Schwab (SCHW). However, JPMorgan Chase (JPM) managed to recover some ground on Friday.
As a result of these events, the major indexes experienced significant declines, breaking through multiple levels of support during the week, and leading to pressure on many leading stocks. Treasury yields also fell sharply, with uncertainty around the pace of Fed rate hikes.
Additionally, Apple (AAPL) has a new flat base, while Tesla (TSLA) suffered a significant sell-off last week, but managed to find support at its 10-week line on Friday. However, TSLA stock is currently not actionable.
Investors should also keep an eye on financials such as First Republic Bank (FRC) stock, Western Alliance Bancorp (WAL), Signature Bank (SBNY), and Charles Schwab (SCHW), as well as the XLF financial ETF and KRE regional bank ETF. It is also important to pay attention to well-capitalized giants such as JPMorgan, which experienced a sharp decline last week but bounced back on Friday.
Before Wednesday's market open, SIVB stock will be replaced by Insulet (PODD) in the S&P 500, causing a jump in PODD stock on Friday evening.
PANW stock is currently on the IBD Leaderboard watchlist, while MPWR stock is listed on the IBD Long-Term Leaders watchlist. Monolithic Power, United Airlines, and ULTA stock are on the IBD 50, while Meta Platforms was Friday's IBD Stock of the Day.
In the video accompanying this article, the market's performance is discussed in-depth, along with an analysis of JPMorgan Chase, Palo Alto Networks, and Meta Platforms stock.
Read More: After SVB failure, US Acts to Shore Up Confidence in Banking System
Dow Jones Futures Today
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| photo: techstory.in |
Today's Dow Jones futures experienced a 1.2% surge compared to fair value, while S&P 500 futures increased by 1.7%, and Nasdaq 100 futures jumped by 1.8%. The volatile surge in futures was due to significant news from financial regulators on Sunday evening.
Although the 10-year Treasury yield increased 1 basis point to 3.7%, the 2-year Treasury yield plummeted 16 basis points to 4.43%, as the odds of a Fed rate hike fell.
Currently, the market is pricing in quarter-point hikes in March and May, but the probability of another increase is below 50%. In contrast, a few days ago, the market predicted 50 basis points on March 22, with at least two additional quarter-point hikes.
Following the Silvergate and SVB collapses last week, Bitcoin increased significantly on Sunday after declining sharply.
It's important to note that the overnight action in Dow futures and other areas doesn't always translate into actual trading during the next regular stock market session.
FDIC, Regulators Protect SVB Financial Depositors
Following the opening of Dow futures, the Federal Deposit Insurance Corp. and Federal Reserve released a joint statement confirming that depositors of SVB Financial would have access to their funds starting Monday, March 13. Additionally, they declared that Signature Bank, which was heavily exposed to cryptocurrency, would be closed due to systemic risks. The depositors of Signature Bank would also be protected.
On Friday, California regulators shut down SVB Financial and its subsidiary, Silicon Valley Bank, marking the largest bank failure since Washington Mutual during the 2008 financial crisis. Multiple reports stated that the FDIC held an auction for Silicon Valley Bank over the weekend, with final bids due Sunday afternoon. However, no winner has been announced yet.
The Fed is in the process of establishing a new financial safety net for other banks. This program will provide loans for a duration of up to one year to banks and other institutions. To be eligible for this program, they must pledge high-quality collateral such as Treasuries, agency debt, and mortgage-backed securities. The collateral will be valued at par instead of mark to market. Banks have been struggling with unrealized debt losses due to the rising Fed rates over the past year, which was a significant factor in SVB Financial's downfall.
Several companies, including tech startups and venture capital firms, have deposits or business relationships with Silicon Valley Bank. Reports suggest that many of these companies will have difficulty meeting their payroll obligations if they are unable to access their accounts soon.
Shareholders and certain unsecured debtholders of SVB and SBNY will not receive protection.
Read More: Coinbase Says it has About US$240 Million Cash Balance With Signature Bank
Stock Market Weekly Action
Last week, the stock market began with gains but quickly turned negative due to concerns about Fed rate hikes and the shutdowns of SVB Financial and Silvergate. Despite Treasury Secretary Janet Yellen's reassurances about the banking system's resilience, the positive momentum did not last.
The Dow Jones Industrial Average suffered a 4.4% loss during the week, while the S&P 500 index fell by 4.55%, and the Nasdaq composite declined by 4.7%. The small-cap Russell 2000 plunged by 8%.
Apple's stock only fell 1.7% to $148.50 for the week, remaining above its 200-day line, but retreated from its Monday intraday high of $156.30, which was close to its $157.48 buy point.
The 10-year Treasury yield plummeted 29 basis points to 3.69% last week, after reaching a 2023 high of 4.09% on March 2. The 2-year yield also tumbled by 27 basis points to 4.59%, including 31 basis points on Friday and 48 points on Thursday and Friday.
Although U.S. crude oil futures rose on Friday, it still fell by 3.8% to $76.68 a barrel during the week.
ETFs
Last week saw significant declines across several ETFs. The Innovator IBD 50 ETF (FFTY) dropped by just over 6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell by 3.4%. The iShares Expanded Tech-Software Sector ETF (IGV) gave up 5.7%, and the VanEck Vectors Semiconductor ETF (SMH) retreated 3%, with MPWR stock being one of its holdings.
Speculative story stocks also saw a sharp decline with ARK Innovation ETF (ARKK) falling by 10.9% and ARK Genomics ETF (ARKG) by 11.4%. Tesla stock, a major holding in Ark Invest's ETFs, fell 12.3% for the week but saw a slight increase on Friday.
Other ETFs that experienced significant declines include the SPDR S&P Metals & Mining ETF (XME) which sold off 11.1%, the Global X U.S. Infrastructure Development ETF (PAVE) which retreated 7.1%, the U.S. Global Jets ETF (JETS) which descended 4.8%, and the SPDR S&P Homebuilders ETF (XHB) which dropped by 4.85%. The Energy Select SPDR ETF (XLE) gave up 5.3%, while the Health Care Select Sector SPDR Fund (XLV) slumped 3.85% to its lowest point since October.
The Financial Select SPDR ETF (XLF) experienced a sharp decline of 8.5%, with significant holdings in JPMorgan and SCHW stock. Meanwhile, the SPDR S&P Regional Banking ETF (KRE) saw a massive drop of 15.7%, its worst weekly loss since the Covid crash in March 2020. Notably, SIVB stock and Western Alliance are among the key components of this ETF.
Market Analysis
Last week was tough for the stock market as major indexes suffered significant losses and broke through several support levels. Despite early losses, the indexes attempted to rebound on Friday, briefly showing positive momentum before declining to new lows.
Both the S&P 500 and Nasdaq composite indexes, along with the Russell 2000, fell below their 21-day lines early in the week and ended up well below their 50-day and 200-day moving averages. By the end of the week, the S&P 500 and Russell 2000 closed below the levels seen on Jan. 6, which was a follow-through day.
The Dow Jones has reached its lowest levels since early November due to several factors, including the Federal Reserve Chairman Jerome Powell's announcement of "faster" rate hikes and the recent struggles of SVB Financial and Silvergate Capital. These events have caused concerns about potential bank contagion and its impact on both Wall Street and the economy.
If the issues at SVB Financial are contained and broader banking fears ease, this could restore market confidence. However, it could also lead to an increase in Treasury yields, the dollar, and the likelihood of a Fed rate hike.
The chances of a half-point Fed rate hike jumped from 30% to over 80% after Powell's testimony, but then dropped below 40% on Friday and continued to decrease over the weekend. Overall, the market experienced significant losses last week, with major indexes breaking through multiple support levels.
Last week, even the leading stocks experienced significant losses. While some stocks held up until Thursday, by Friday's close, most of them were struggling as well.
Initially, the upcoming March 14 CPI inflation report and Friday's jobs report were viewed as significant events until the banking sector's recent downturn. A relatively mild CPI inflation rate could provide Fed chief Powell and his colleagues with the justification they need to raise rates by only a quarter-point.
In the short term, however, Wall Street is likely to take its cues from the banking sector. Investors should pay attention to banks, from recent major losers like First Republic to broader ETFs and relatively strong performers like JPMorgan stock.
On Friday, JPMorgan was the second-best stock in the S&P 500, while SBNY stock, First Republic, and Schwab were the worst performers. This indicates that investors view JPMorgan as relatively secure. However, if JPM stock falls below last week's lows, it will be a cause for concern.
What To Do Now
Currently, the stock market is experiencing a significant sell-off due to unfavorable news and heightened uncertainty, creating an unhealthy investing environment. Therefore, investors are advised to be cautious and wait on the sidelines until the situation stabilizes. New buying opportunities may arise if conditions clear up in the coming days or weeks.
Investors should prioritize building their watchlists with stocks demonstrating strong relative strength, such as META, Monolithic Power, or Palo Alto, and focus on potential buy points later when the market stabilizes. It is important to stay updated on the market direction and leading stocks and sectors by reading The Big Picture on a daily basis.
Read More: Following SVB, The US Banking Regulator Closes Signature Bank
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