Risk aversion escalated on Wall Street Friday, with all major indices trading in the red, as investors remain skeptical about the stability of the banking sector in the wake of recent turmoil in the U.S. and Europe.
Cues From Friday’s Trading:
First Republic Bank (NYSE:FRC) plummeted more than 25% as the $30-billion injection by major banks such as JPMorgan Chase & Co. (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C), brought only temporary respite, stoking fears that the joint effort may not be sufficient to boost trust in smaller regional banks.
Credit Suisse Group AG (NYSE:CS) fell 5% despite the liquidity support provided by the Swiss National Bank earlier this week. Losses were recorded across the board in banking stocks, with the Financial Select Sector SPDR Fund (NYSE:XLF) down by more than 3% and undeperforming versus all other sectors.
The VIX index (INDEXCBOE: VIX) soared by 9% on the triple witching day, as $2.7 trillion in derivative contracts expired on the same day.
See Also: First Republic’s Struggle For Survival In Lending Sector Chaos: 4 Analysts Weigh In, Possible ‘Distressed M&A Sale … Could Leave Minimal Residual Value’
On the data front, the University of Michigan showed that consumer sentiment dropped for the first time in four months to 63.4 in March, from 67 in February, and well below expectations (67).
As recession worries grew, traders began to lower their forecasts for Fed interest rates. Fed swaps are now pricing in an increase of less than 25bp next week, with Fed Funds estimated at 4% by December 2023, essentially discounting three 25bp cuts in the second half of the year.
The Nasdaq 100 Index dropped by 0.7% to 12,480 points. The Dow Industrials fell 1.2% to 31,874, erasing the prior session’s gains. The S&P 500 failed in the attempt to break the psychological 4,000 mark and retraced half of the gains made on Thursday, losing 1.1% to 3,916 points.
All S&P 500 sectors dropped, with financials posting the largest daily decline, followed by industrials.
|S&P 500 Index||-1.17%||3,915|
Upcoming Economic Data:
The key economic event next week will be the FOMC meeting, which is scheduled for Wednesday, March 22.
The Fed will also provide the summary of economic projections, which will illustrate the median path for future fed funds rates. According to the Fed’s December SEP, the Fed funds rate will be 5.1% by the end of 2023.
After the banking crisis of the past week, it will be interesting to see how Fed members’ views on rates have changed.
On the housing front, the existing house sales data for February will be released on Tuesday, March 21, with consensus anticipating an increase to 4.18 million from 4 million in January, while the new home sales reading for February will be released on Thursday, March 22, (0.64 million consensus, 0.67 million prior).
The US Census Bureau will release statistics for durable goods orders in February next Friday, with a 0.9% month-on-month rise expected.
S&P Global will announce flash PMIs for March, with Services projected to rise to 50.9 from 50.6 and Manufacturing to rise to 47.6 from 47.3.
Stocks In Focus:
Ford Motor Company (NYSE:F) fell by more than 5%, as the company is is recalling 1,280,726 Ford Fusion and Lincoln MKZ vehicles to fix a front brake hose that could break.
Carnival Corporation (NYSE:CCL) fell 4% weighed down by recessionary fears. Yesterday, the company announced the sale of its cruise ship Odyssey to Mitsui OSK Lines.
Microsoft (NASDAQ:MSFT) surged 1% to $280, hitting levels last seen in August 2022, as the software giant plans to adopt artificial intelligence (AI) to its vast range of products.
Commodities, Bonds, Other Global Equity Markets:
Crude oil prices tumbled by more than 2%, with WTI-grade crude falling to $66 a barrel, the lowest level since December 2021.
The 10-year Treasury yield fell 17 basis points to 3.41%.
Gold rallied 2% soaring to $1,960/oz, posting some interesting technical breakouts.
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