Stock Market and Economy Roundup
Outside of the bank stocks upheaval, the market’s sole compass is the Fed’s monetary policy outlook. Meanwhile, the U.S. Federal Reserve seems to be “between a rock and a hard place,” as a banking crisis and data showing the continued strength of the extremely tight labor market pull it in different directions, with regard to its interest rate decision in next week’s meeting. With this level of uncertainty, investors are advised to take precautions and base their decisions on trustworthy data and analysis.
Equities – Weekly Performance
After last week’s sell-off in the wake of the SVB collapse, the markets started the week deep in the red, spooked by another victim of a bank run: on Sunday, the regulators closed down Signature Bank, one of the main banks of the cryptocurrency industry. Banking shares tumbled, with the SPDR S&P Regional Banking ETF (KRE) continuing its slide.
Global banking stocks quickly caught fire; Europe’s banking stocks suffered their biggest drop in a year. The most notable on the global scene was the performance of the embattled Credit Suisse (CS), whose shares tumbled so much that at some point markets feared it might collapse. After years of steady decline, marked by a series of scandals and mismanagement issues, CS was the natural victim of a market rout. Eventually, the Swiss central bank was forced to provide Credit Suisse with a $54 billion in a liquidity backstop to help revive investor confidence: although twice smaller than it was before the 2008 crisis, the bank is still too big to fail. It’s probably not the end of the bank’s troubles, though, as analysts at JPMorgan (JPM) said that its loss of investor confidence prevents its future existence as an independent financial institution. Outflows from Credit Suisse reached over $10 billion a day in the second part of the week. Swiss officials are arranging for CS to be taken over by UBS (UBS), Switzerland’s largest bank.
The U.S. and global shares rebounded briefly in between the failure of SVB and the almost-failure of CS, as the markets assumed that the turmoil in financials would prevent the Fed from a large interest rate increase in its March 21-22 meeting. However, “no rest for the wicked,” decided another central bank. The European Central Bank hiked its interest rates by 50 bps on Thursday, bringing the rates to their highest since 2008, at 3%. Europe’s policy makers haven’t yet outlined a plan to shore up the region’s banking system, saying that they are “monitoring current market tensions closely” and have sufficient tools to provide banks with liquidity, if needed.
Meanwhile, the regional banking saga continued in the U.S., as the First Republic Bank (FRC) felt the brunt of the market’s distrust. FRC stock has been battered for days in the wake of the SVB collapse, as concerns have risen about its financial health. The stock took another hit after S&P Global Ratings on Wednesday downgraded the FRC’s bonds to junk. The embattled lender then turned to the biggest U.S. banks for help.
U.S. stocks closed sharply higher on Thursday after the 11 largest U.S. lenders agreed to provide a lifeline of $30 billion to First Republic, with the U.S. government orchestrating the efforts. JPMorgan, Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC) led the effort to boost confidence and help end the banking crisis.
Friday saw stocks tumble again, as the banking troubles remained in focus. SVB Financial Group, the parent company of the fallen Silicon Valley Bank, filed for Chapter 11 bankruptcy protection. Shares of the freshly rescued First Republic slid, after analysts said its outlook hadn’t improved much; the bank suspended dividends and borrowed large sums from the Fed’s discount window (bank lending facility). Other regional lenders’ shares dropped 6%.
After the past week’s roller coaster, the S&P 500 managed to log in a weekly rise of 1.5%, the Dow closed the week with a 0.4% decline, while the Nasdaq Composite jumped as much as 4.3%.
Technology stocks have been the bright spot of the markets this past week. As the banking turmoil unfolded, Treasury yields tumbled, brought down by a massive swing in investors’ interest-rate expectations. The decline in bond yields is one of the main points of support for tech companies’ shares. The Nasdaq 100 index, which was clobbered in 2022, beat the S&P 500 by a wide margin this year, rising 15% YTD versus the general large cap index’s 2%. This past week, the big tech’s index surged over 5%, as investors cheered its limited exposure to the banking sector.
Major Economic Events of the Past Week
U.S.
The U.S. February CPI inflation came in at 0.4% month-on-month and 6.0% year-on-year, in line with expectations, compared to January’s increases of 0.5% and 6.4%, accordingly.
February’s CPI ex Food & Energy (aka Core Inflation) rose 5.5% year-on-year as was expected, down from January’s 5.6% increase. However, month-on-month the Core CPI rose by 0.5%, the most since September 2022, versus the expectations of no change from January’s 0.4% month-over-month increase. Economists see the Core Inflation gauge as a better indicator of underlying inflation than the headline measure.
February’s Producer Price Index (PPI) fell 0.1% month-on-month and rose 4.6% year-on-year, versus the expectations of +0.3% and +5.4%, accordingly. PPI is seen as a leading indicator of consumer inflation, preceding the CPI by 1 to 3 months; its decline may foretell further easing of the CPI increases in the next months.
March’s NY Empire State Manufacturing Index dropped to -24.6 compared to expectations of a decline to -8 and February’s level of -5.8.
February’s Retail Sales fell 0.4% month-on-month versus the expectations of -0.3%, pointing at weakening consumer spending.
March’s Michigan Consumer Sentiment Index (Preliminary) fell to 63.4 from February’s 67; the expectations were of no change.
Initial Jobless Claims for the week ending March 11th came in at 192K versus the expected 205K. The decline from the previous week’s 212K was the biggest since July. Continuing Jobless Claims for the week ending March 4th were at 1.684M, also much lower than the expected 1.715M. Stubbornly strong U.S. job market adds to the bets that the Fed is far from done rising rates, notwithstanding the banking crisis.
Japan
January’s Industrial Production tumbled 5.3% month-on-month versus the expected 4.6% decline.
February’s Exports rose 6.5% year-on-year, less than expectations of +7.1%. Imports rose 8.3%, much lower than the projected increase of 12.2% year-on-year.
China
February’s Industrial Production rose 2.4% year-on-year versus expectations of +2.7%.
February’s Retail Sales rose 3.5% year-on-year, in line with projections.
Stock Highlights of the Past Week
GitLab Inc. (GTLB) reported overall positive results, with revenues in line with analyst predictions and statutory losses smaller than expected. However, the stock fell as analysts trimmed their forecasts for future revenues as well as price targets.
FedEx (FDX) stock jumped after the company boosted its forecast for this year; even though earnings declined for a second straight quarter, they were still stronger than analysts expected.
Our Star of the Week is Calix (CALX), which surged 9.5% in 5 trading days. Calix, Inc. is a provider of cloud, software, and systems platform, as well as corresponding services. This past week, the stock surged together with most of the Tech sector – however, for a mid-cap stock, it did extremely well, as the largest gains were seen in the Nasdaq-100 index of large-cap tech stocks.
Upcoming Economic Calendar Events
This week we’ll see published a number of very important reports and economic decisions in major markets.
On Wednesday, we’ll finally learn what the Fed Interest Rate Decision will be; the markets expect the U.S. central bank to hike rates by 0.25% to 5%, their highest level since the summer of 2007, before the housing crisis unfolded into a global financial crisis.
On Thursday, there will be reports on Chicago Fed National Activity Index (CFNAI), New Home Sales, and, of course, the weekly New & Continuing Jobless Claims.
Finally, on Friday, we’ll receive readings of the Durable Goods Orders, expected to rise 0.9% from January’s -4.5%. However, the preliminary March PMI reports are expected to steal the markets’ attention. Manufacturing PMI is forecasted to rise a little from February’s 43.7, still pointing at contraction; Services PMI is expected to increase further from February’s 50.6, showing faster expansion of the services sector.
Elsewhere, Eurozone’s March Consumer Confidence (Preliminary) will be reported on Thursday, adding clearer view at the state of the European consumer; it is expected to rise to -18.2 from February’s -19. On Friday, we’ll get preliminary readings on Eurozone’s March Manufacturing PMI and Services PMI, both of which are expected to remain broadly unchanged from February – with services continuing to expand while manufacturing is contracting (this situation is currently present in most large economies).
Current and scheduled economic reports, Fed statements, and other releases, as well as their level of impact on stock markets, can be found on the TipRanks Economic Calendar.
Upcoming Earnings and Dividend Announcements
Companies releasing earnings reports this week include Nike (NKE), GameStop (GME), General Mills (GIS) and many more.
Companies’ reporting dates, consensus EPS forecasts and past data, together with their analyst ratings and price targets, can be found on the TipRanks Earnings Calendar.
This week’s Ex-Dividend dates are coming for the payouts of Broadcom (AVGO), Best Buy (BBY), National Bank of Canada (NTIOF), and other dividend-paying firms.
Companies’ Ex- and Payment dates, together with their analyst ratings and price targets, can be found on the TipRanks Dividend Calendar.
