Stocks Higher as a Plunge in Bond Yields Supports the Broader Market

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.51%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.14%.

U.S. stock indexes have rebounded after the S&P 500 fell to a 2-1/4 month low and the Dow Jones Industrials dropped to a 4-1/2 month low at the open of the trading day.  

Turmoil in the U.S. financial sector continues to weigh on bank stocks following the collapse of Silicon Valley Bank last Friday and the closing of Signature Bank of New York on Sunday. 

A plunge in bond yields today and demand for safety from the U.S. banking turmoil has sparked a rally in utility stocks.  Also, Biotechnology stocks are climbing on M&A activity after Pfizer agreed to purchase Seagen for $43 billion and Sanofi agreed to buy Provention Bio for $2.9 billion.

Stock index futures initially surged overnight after U.S. agencies announced a backstop for U.S. banks.  Nevertheless, concerns about fallout from the banking turmoil have led to sharp losses to bank stocks earlier this morning. However, they have rallied since then. 

The turmoil in the U.S. banking sector has fueled a surge in safe-haven demand for government debt and knocked global bond yields sharply lower.  The 10-year T-note yield today sank to a 5-week low of 3.412%. Also, the 10-year German bund yield fell to a 5-week low of 2.167%, and the 10-year UK gilt yield fell to a 1-month low of 3.253%.   Federal funds futures now show the Fed will stand pat and not raise interest rates at the March 21-22 FOMC meeting

On Sunday, the Treasury, Federal Reserve, and FDIC introduced a new backstop for banks that will protect all U.S. bank depositors above the $250,000 limit.  In addition, the Fed announced a new "Bank Term Funding Program" that offers 1-year loans to banks up to $25 billion under easier terms than it typically provides.  The Fed also relaxed terms for lending through its discount window, its main direct lending facility.

Morgan Stanley sees the collapse of SVB Financial Group and Signature Bank of New York as having a negative effect on economic growth and recommends "selling any bounces in stocks on a government intervention to quell the immediate liquidity crisis at SVB and other institutions until we make new bear market lows, at a minimum."

Bitcoin (^BTCUSD) is up sharply by more than +17% today to a 1-week high following the action by U.S. authorities to stem the spread of concerns about the health of the U.S. financial system and provide a backstop for U.S. banks. 

Overseas stock markets are mixed.  The Euro Stoxx 50 today is down -2.98%.  China’s Shanghai Composite stock index closed up +1.20%, and Japan’s Nikkei Stock Index closed down -1.11%. 

Today’s stock movers…

First Republic Bank (FRC) is down more than -74% to lead losers in the S&P 500, adding to the -31% of losses last Thursday and Friday, as it tried to quell concerns about its liquidity after it said it had more than $70 billion in unused liquidity from agreements that included the Federal Reserve and JPMorgan Chase. 

Bank stocks are under pressure this morning on the concern about rising financial risks in the banking sector after the collapse of Silvergate Capital and SVB Financial Group.  Comerica (CMA) is down more than -29%.  Also, Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), Zions Bancorp (ZION), and Truist Financial (TFC) are down more than -17%.  In addition, US Bancorp (USB), M&T Bank Corp (MTB), Lincoln National (LNC), Synchrony Financial (SYF), Regions Financial (RF), and Citizens Financial Group (CFG) are down more than -7%. 

Trinity Capital (TRIN) is down more than -5% after Keefe, Bruyette & Woods downgraded the stock to underperform from market perform.

Energy stocks and energy service providers are falling today, with the price of WTI crude down more than -2% to a 5-week low.  Phillips 66 (PSX) is down more than -6%.  Also, Schlumberger (SLB), Haliburton (HAL), Baker Hughes (BKR), Marathon Petroleum (MPC), and Valero Energy (VLO) are down more than -3%. 

Illumina (ILMN) is up more than +18% to lead gainers in the S&P 500 and Nasdaq 100 after activist investor Carl Icahn announced plans to nominate three people to the company’s board of directors.

Newmont (NEM) is up more than +5% to lead mining stocks, with gold prices up more than +2% today and silver up more than +6% to a 2-week high.

Utility stocks are climbing today after the 10-year T-note yield sank to a 5-week low.  WEC Energy (WEC) and Consolidated Edison (ED) are up more than +4%.  Also, American Electric Power Company (AEP), CMS Energy (CMS), Eversource Energy (ES), Alliant Energy (LNT), Xcel Energy (XEL), Centerpoint Energy (CNP), and Duke Energy (DUK) are up more than +3%.

Seagen Inc (SGEN) is up more than +16% after Pfizer agreed to purchase the company for $43 billion.

Eli Lilly (LLY) is up more than +4% after Wells Fargo Securities upgraded the stock to overweight from equal weight. 

Amgen (AMGN) is up more than +3% to lead gainers in the Dow Jones Industrials Wells Fargo Securities upgraded the stock to overweight from equal weight.

Across the markets…

June 10-year T-notes (ZNM23) today are up +1-30/32 points, and the 10-year T-note yield is down -21.0 bp at 3.489%. June 10-year T-notes this morning rallied sharply to a 5-week high, and the 10-year T-note yield sank to a 5-week low of 3.412%.  Strong demand for government debt is pushing T-note prices sharply higher on the concern of contagion from last Friday’s collapse of Silicon Valley Bank and the closing of Signature Bank of New York on Sunday.   A decline in inflation expectations is also supportive for T-notes after the 10-year breakeven inflation rate dropped to a 1-3/4 month low today of 2.191%. 

The dollar index (DXY00) today is down by -0.69% and fell to a 3-week low. The ongoing turmoil in the U.S. banking sector is undercutting the dollar.  Also, the plunge in T-note yields today is weighing on the dollar.

EUR/USD (^EURUSD) today is up by +0.58%.  The euro today rallied to a 3-1/2 week high as dollar weakness has sparked short covering in EUR/USD.  Gains in the euro are limited after the 10-year German bund yield dropped to a 5-week low today, weakening the euro’s interest rate differentials.

USD/JPY (^USDJPY) today is down by -1.98%.  The yen today rallied to a 3-1/2 week high against the dollar. The selloff in the Nikkei Stock Index today t a 1-week low sparked some safe-haven demand for the yen.  Also, the sharp fall in T-note yields today is bullish for the yen. 

Japan’s economic news today was bearish for the yen after the Q1 BSI large manufacturing business conditions fell -6.9 to a 2-1/2 year low of -10.5. 

April gold (GCJ3) this morning is up +42.9 (+2.30%), and May silver (SIK23) is up +1.154 (+5.63%).  Precious metals prices this morning are sharply higher for a second session, with gold climbing to a 5-week high and silver jumping to a 2-week high.  Concerns about contagion risk from the collapse of Silicon Valley Bank and the closing of Signature Bank of New York have sparked safe-haven buying of precious metals.  Also, the selloff in the dollar today to a 3-week low is bullish for metals prices. In addition, today’s slump in global bond yields supports metals.    A bearish factor for gold is the continued liquidation of long gold positions in ETFs after gold holdings fell to a new 2-3/4 year low last Friday. 

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