Oracle (ORCL) and Ulta beauty ( ULTA ) reported earnings late.
The stock market rise turned sharply lower on Thursday as questions about the banks’ financial conditions suddenly surfaced. The S&P 500 and Nasdaq fell to critical support levels.
Bank shares fell as SVB Financial (SIVB), parent company of Silicon Valley Bank, hit a series of negative headlines while a long-suffering crypto bank Silvergate Capital (SI) said it would close. Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Charles Schwab (SCHW) was among the high-profile losers.
SIVB stock continued to dive of late as fears of a bank run grew.
Investors should be cautious and wait for the market recovery to show renewed strength.
ORCL shares fell 4% overnight after Oracle earnings topped but revenue fell short. Oracle shares slipped 5.9% to 81.75 on Thursday, falling below its 50-day line. Shares have been working on a buy point at 91.32 from a deep cup-with-handle base.
ULTA stock fell 2% in extended action. Ulta Beauty’s earnings and revenue topped views, but same-store guidance was light. The beauty product retail giant fell 0.8% to 519.93 on Thursday, just below its 21-day line. ULTA stock doesn’t have a clear buy point.
The Ministry of Labor issues the job report from February at 8:30 ET. Economists expect to see nonfarm payrolls 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. Unemployment should remain at a 53-year low of 3.4%. The average hourly wage should increase by 0.3%, but the annual wage gain should increase to 4.7%.
On Thursday, Labor reported that initial jobless claims rose more than expected to the highest number since December. Challenger, Gray & Christmas reported that the announced layoff plans are the highest that have started in a year since 2009.
The jobs report from February, together with next week’s CPI inflation report, could lock in expectations for a half-point rate hike on March 22.
Dow Jones Futures Today
Dow Jones futures fell 0.7% relative to 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 slightly.
The February jobs report is sure to swing Dow Jones futures, Treasury yields and Fed rate hikes.
Keep in mind 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 rallied off to a decent start on Thursday on rising jobless claims, but quickly faltered amid bank woes. The major indexes deteriorated steadily and closed near session lows.
The Dow Jones Industrial Average fell 1.7% in Thursday’s stock market trading. The S&P 500 index fell 1.85%, with SIVB shares, First Republic Bank (FRC) and Schwab the biggest losers. The Nasdaq composite slipped 2.05 per cent. The small-cap Russell 2000, which has many financial components, fell by 2.8 per cent.
U.S. crude oil prices fell 1.2% to $75.72 a barrel. 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 Treasury yield fell 3 basis points to 5.28%.
Bold rate hikes 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 from around 30% before Fed chief Jerome Powell’s hawkish testimony on Tuesday. 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.
SIVB stock fell 60% to 106.04, its lowest price since 2016. SVB Financial announced a $1.75 billion stock sale late Wednesday. The Silicon Valley Bank parent is also cutting guidance. Deposits are dwindling as startups face a funding drought. There are also major concerns about SVB’s loans to the tech industry.
SIVB shares fell 22% overnight in volatile, heavy trading. Peter Thiel’s Founders Fund is advising companies to pull money from Silicon Valley Bank, Bloomberg reported. SVB Financial still needs to price this share offering.
Silvergate Capital, which has been in freefall for months, announced late Wednesday that it would shut down, along with Silvergate Bank’s liquidation. The SI share fell 42 per cent.
The SVB and Silvergate news slammed fiscal policy, already under pressure, as the extremely inverted yield curve upends the traditional short/loan long lending strategy.
KeyCorp ( KEY ), which warned of net interest margins earlier this week, fell 7.2% on Thursday. Western Alliance Bancorp ( WAL ) fell nearly 13%, and FRC stock plunged 16.5%.
The JPM share slipped 5.4 per cent. On Tuesday, JPMorgan fell below a 138.76 buy point and its 50-day line. BAC shares retreated 6.2% to their lowest level since October. WFC stock also lost 6.2%, falling below its 200-day line after breaking below its 50-day earlier this week.
SCHW stock fell 12.8%, gapping below the 200-day line and the low on the basis. JPMorgan offered a block sale of 8.5 million Schwab shares, Bloomberg reported. SCHW stock is at worst levels since October.
Investors will look much more closely at banks’ books and capital levels, something that has not been a real concern until now. The banks are pushing deposit and CD interest rates up significantly, while long-term interest rates are lagging behind. Many banks are sitting with significant unrealized losses on loans and other securities.
If the banks limit lending, it can quickly cool the economy. Meanwhile, SVB Financial and Silvergate Capital’s troubles are raising concerns about their tech and crypto clientele.
Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 3.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 2.3%, with ORCL stock as a major IGV component. VanEck Vectors Semiconductor ETF (SMH) gave up 1.9%.
As a result of more speculative stock stocks, the ARK Innovation 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 ) fell 2.2%. US Global Jets ETF (JETS) fell 3.1 per cent. The SPDR S&P Homebuilders ETF (XHB) fell 1.6 percent. The Energy Select SPDR ETF (XLE) retreated 1.4% and the Health Care Select Sector SPDR Fund (XLV) retreated 1%.
The Financial Select SPDR ETF ( XLF ) fell 4.1%, with JPM shares, Wells Fargo, Charles Schwab and Bank of America all notable holdings. The SPDR S&P Regional Banking ETF ( KRE ) plunged 8.2% to a three-year low. SIVB stock is a notable KRE holding, along with KeyCorp and Western Alliance.
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Analysis of market rally
The stock market rally had a very negative day, with a downward turn hurting the major indexes and leading stocks.
The S&P 500 opened by rising above its 50-day line, but quickly hit resistance at the 21-day moving average and turned lower to below its 200-day line and its March 2 low.
The Nasdaq initially rose above its 21-day line, but then reversed below the 200-day line. The tech-heavy composite briefly dipped below its 50-day before falling just above that level.
The Dow Jones index dipped below its 200-day line to a four-month low.
The Russell 2000 decisively fell below its 50-day line, all the way to its 200-day line.
Some leaders held their ground, but most did not.
Banking problems triggered by SIVB shares, Silvergate and KeyCorp do not mean a financial crisis is on the way. Banks, especially giants like JPMorgan and Bank of America, are far better capitalized than they were during the 2007-2009 financial crisis. But the fact that the words “financial crisis” are being mentioned at all is a big shift.
If the banks rein in lending aggressively, it would quickly hit the wider economy. It would also increase the already high risk that the Federal Reserve will overshoot rate hikes, triggering a hard landing.
Friday’s jobs report will be important, but it’s the market reaction that matters. Keep in mind that if the economy suddenly stalls, lagging employment data won’t provide a warning.
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What should I do now
With the S&P 500 and other major indexes heading south again, now is not the time to add exposure. Investors should look to cut losses on struggling recent purchases.
Perhaps the market rally will again find support with a tame jobs report or upcoming inflation data, but hope is not a strategy. The key indices are on the verge of breaking decisively lower.
On the positive side, wait for the S&P 500 and Nasdaq to regain their 21-day lines. If that happens, new buying opportunities will arise. So keep working on those watch lists.
Read The Big Picture every day to stay in sync 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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