Bank Stocks Crater but Technology Stocks Climb as Bond Yields Slide

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed down -0.15%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.79%.

Stock indexes Monday recovered from sharp early losses to settle mixed, with the S&P 500 falling to a 2-1/4 month low and the Dow Jones Industrials falling to a 4-1/2 month low. The broader market Monday found support on emergency measures announced Sunday by U.S. government agencies to guarantee all depositors’ money and to provide easier loan terms to banks facing liquidity troubles.  However, bank stocks still settled sharply lower on contagion concerns 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 Monday supported technology stocks and pushed the Nasdaq 100 Stock Index higher.  Also, demand for safety from the U.S. banking turmoil sparked a rally in utility stocks. In addition, Biotechnology stocks rose on M&A activity after Pfizer agreed to purchase Seagen for $43 billion and Sanofi agreed to buy Provention Bio for $2.9 billion.

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 Monday 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%.  The sharp drop in yields also boosts debt security prices and improves the balance sheets of banks that are holding long-term government bonds and agency debt. 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 to 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) rallied sharply by more than +20% Monday to a 2-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 on Monday settled mixed.  The Euro Stoxx 50 closed down -3.14%. China’s Shanghai Composite stock index closed up +1.20%, and Japan’s Nikkei Stock Index closed down -1.11%. 

Today’s stock movers…

Illumina (ILMN) closed up more than +16% 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) closed up more than +7% to lead gainers in 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) closed up more than +4%.  Also, Xcel Energy (XEL) and Exelon (EXC) closed up more than +3%.  In addition, Ameren (AEE), Eversource Energy (ES), Alliant Energy (LNT), CMS Energy (CMS), Centerpoint Energy (CNP), American Electric Power Company (AEP), and Consolidated Edison (ED) closed up more than +2%.

Seagen Inc (SGEN) closed up more than +14% after Pfizer agreed to purchase the company for $43 billion.

Eli Lilly (LLY) closed up more than +3% after Wells Fargo Securities upgraded the stock to overweight from equal weight. 

Amgen (AMGN) closed up more than +2% to lead gainers in the Dow Jones Industrials after Wells Fargo Securities upgraded the stock to overweight from equal weight.

First Republic Bank (FRC) closed down more than -61% 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) and KeyCorp (KEY) closed down more than -27%.  Also, Zions Bancorp (ZION) closed down more than -25%, and Huntington Bancshares (HBAN) and Truist Financial (TFC) closed down more than -16%.  In addition, Bank of America (BAC), Fifth Third Bancorp (FITB), Citigroup (C),US Bancorp (USB), Lincoln National (LNC), Synchrony Financial (SYF), Regions Financial (RF), and Citizens Financial Group (CFG) closed down by -5% or more. 

Trinity Capital (TRIN) closed down more than -6% after Keefe, Bruyette & Woods downgraded the stock to underperform from market perform.

Energy stocks and energy service providers retreated Monday, with the price of WTI crude falling more than -2% to a 5-week low.  Phillips 66 (PSX) closed down more than -5%.  Also, Schlumberger (SLB) and Marathon Oil (MRO) closed down more than -4%.  In addition,  Devon Energy (DVN), ConocoPhillips (COP), Diamondback Energy (FANG), Haliburton (HAL), Baker Hughes (BKR), Marathon Petroleum (MPC), and Valero Energy (VLO) closed down more than -3%. 

Across the markets…

June 10-year T-notes (ZNM23) on Monday closed up +1-16.5/32 points, and the 10-year T-note yield fell by -11.6 bp to 3.583%.  June 10-year T-notes Monday 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 also supports T-notes after the 10-year breakeven inflation rate dropped to a 1-3/4 month low Monday of 2.191%. 

• Unusual Options Volume Highlights a Daring Contrarian Move for Goodyear Tire (GT)
• Investors are Shorting Deep Out-of-the-Money Puts and Calls in American Express
• The Collapse of Silicon Valley Bank is a Headwind for Tech Stocks
• Stocks Higher as a Plunge in Bond Yields Supports the Broader Market