Stocks Surge on Rescue Plan for First Republic Bank

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +1.76%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.69%.

Stock indexes Thursday rebounded from early losses and moved sharply higher, with the Nasdaq 100 rallying to a 1-month high.  A recovery in bank stocks led the overall market higher as bank concerns eased on reports that major banks were in talks to bolster First Republic Bank.  Also, a rally in chip stocks Thursday fueled a rally in technology stocks.

Bank stocks Thursday recovered from early losses and moved higher after the biggest U.S. banks agreed to deposit $30 billion with First Republic Bank to boost liquidity in the lender.  JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo will contribute $5 billion of deposits each, while Goldman Sachs and Morgan Stanley will put in $2.5 billion.  In addition, PNC Financial Services Group, Bank of New York Mellon, Truist Financial, US Bancorp, and State Street will each contribute $1 billion.

The turmoil in global financial markets eased Thursday after Credit Suisse AG rallied more than +18% on reduced liquidity concerns after the bank arranged to borrow as much as 50 billion francs from a Swiss National Bank liquidity facility.

Thursday’s +50 bp rate hike by the ECB was bearish for the overall market.  Hopes were dashed that the ECB might only raise rates by +25 bp due to the turmoil in U.S. and European financial markets.  The ECB’s move suggested that the Fed might also be encouraged to plow ahead with rate hikes despite the banking turmoil.

Global bond yields moved higher Thursday.  An easing of European banking concerns reduced the safe-haven demand for government debt and pushed European government bond yields higher. Also, Thursday’s +50 bp rate hike by the ECB boosted European bond yields.  The 10-year German bund yield jumped +16.0 bp to 2.2907%.

The 10-year T-note yield recovered from a 6-week low of 3.364% and finished the day up +11.8 bp at 3.573%.  Bond yields Thursday initially moved lower on ongoing banking concerns but turned higher when stocks rallied on a rescue package for First Republic Bank. Also, Thursday’s U.S. economic news showed strength in the labor and housing markets, which was hawkish for Fed policy and bearish for bond prices. 

U.S. weekly initial unemployment claims fell -20,000 to 192,000, showing a more robust labor market than expectations of 205,000.  Likewise, weekly continuing claims unexpectedly fell -29,000 to 1.684 million, showing a stronger labor market than expectations of an increase to 1.723 million. 

U.S Feb housing starts rose +9.8% m/m to a 5-month high of 1.450 million, stronger than expectations of 1.310 million.  In addition, Feb building permits, a proxy for future construction, rose +13.8% m/m to a 5-month high of 1.524 million, stronger than expectations of 1.343 million. 

The U.S. Mar Philadelphia Fed business outlook survey rose +1.1 to -23.2, weaker than expectations of -15.0.

The U.S. Feb import price index ex-petroleum unexpectedly fell -0.4% m/m, the biggest decline in 7 months and weaker than expectations of an increase of +0.1% m/m.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 today closed up +2.03%.  China’s Shanghai Composite stock index closed down -1.12%, and Japan’s Nikkei Stock Index closed down -0.80%. 

Today’s stock movers…

First Republic Bank (FRC) recovered from a -30% plunge and closed up more than +9% to lead gainers in the S&P 500 after the biggest U.S. banks agreed to contribute $30 billion in deposits to First Republic to boost its liquidity. Other regional banks recovered their losses and also rallied on the news.  Regions Financial (RF) closed up more than +5%.  In addition, KeyCorp (KEY), Zions Bancorp (ZION), and Fifth Third Bancorp (FITB) closed up more than +4%.

Chip stocks rallied Thursday to lead technology stocks higher.  Advanced Micro Devices (AMD) closed up more than +7% to lead gainers in the Nasdaq 100.  Also, Intel (INTC) closed up more than +6% to lead gainers in the Dow Jones Industrials.  In addition, Lam Research (LRCX), Nvidia (NVDA), and KLA Corp (KLAC) closed up more than +5%.  Finally, Qualcomm (QCOM) and Micron Technology (MU) closed up more than +4%.

Adobe (ADBE) closed up more than +5% after reporting Q1 adjusted EPS of $3.80, above the consensus of $3.67, and raising its full-year adjusted EPS forecast to $15.30-$15.60 from a previous forecast of $15.15-$15.45, above the consensus of $15.31. 

Progressive Corp (PGR) closed up more than +5% after Wells Fargo Securities double-upgraded the stock to overweight from underweight, saying the company has “turned the corner on growth.”

Foot Locker (FL) closed up more than +4% after Telsey Advisory Group upgraded the stock to outperform from market perform.

Higher bond yields Thursday weighed on real estate investment trusts.  AvalonBay Communities (AVB), Boston Properties (BXP), Essex Property Trust (ESS), Alexandria Property Trust (ARE), Regency Centers (REG), Digital Realty Trust (DLR), and Federal Realty Investment Trust (FRT) closed down more than -2%. 

Dollar General (DG) closed down more than -2% after reporting Q4 net sales of $10.20 billion, below the consensus of $10.24 billion.

Across the markets…

June 10-year T-notes (ZNM23) on Thursday closed down -30 ticks, and the 10-year T-note yield rose by +11.8 bp to 3.573%.  June 10-year T-notes Thursday fell back from a 6-week high, and the 10-year T-note rebounded from a 6-week low of 3.364%.  T-notes gave up early gains and turned lower when stocks rallied sharply on a plan by the biggest U.S. banks to provide liquidity for First Republic Bank.  Signs of strength in the U.S. labor and housing markets were also bearish for T-notes after weekly jobless claims fell more than expected and Feb housing starts and building permits rose more than expected. 

Higher German bund yields Thursday also undercut T-note prices.  The 10-year German bund yield rose +16.0 bp to 2.290% after the ECB raised interest rates by +50 bp.  Also, ECB President Lagarde issued hawkish comments by saying that with inflation remaining “too high for too long,” the ECB “isn’t waning on its commitment to fight inflation.”

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