Stocks Continue Lower on Bank Turmoil

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed down -1.10%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.49%.

Stock indexes Friday posted moderate losses on concern that turmoil in the banking sector will push the global economy into recession.  A decline in regional bank stocks led the overall market lower. First Republic Bank sank more than -32% and weighed on its peers as sentiment toward the stock remains fragile despite Thursday’s proposal for $30 billion of aid from a consortium of the biggest U.S. banks.  However, losses in the Nasdaq were limited by a drop in bond yields that provided some support for interest rate-sensitive technology stocks. 

Renewed weakness in bank stocks Friday weighed on the overall market.  Reuters reported that at least four big European banks are curbing trading with Credit Suisse Group AG or are considering doing so.  Credit Suisse, which received a $54 billion credit line from the Swiss National Bank Thursday, said it has sufficient liquidity.  The stock fell more than -7% Friday.  About $600 billion of market value has evaporated from the 70 biggest U.S. and European banks since March 6.

In a sign of funding strains, Fed data showed that U.S. banks borrowed a record $152.85 billion from the discount window in the week of March 15.

Global bond yields fell sharply Friday as concerns mount that the turmoil rocking the banking sector could tip the global economy into recession.  The 10-year T-note yield tumbled -18.0 bp to 3.397%, and the 10-year German bund yield dropped -18.2 bp to 2.108%.  T-note yields extended their declines after Friday’s economic news showed a decline in inflation expectations. 

On the positive side for stocks, FedEx closed up more than +7% Friday after reporting stronger-than-expected Q3 adjusted EPS and raising its full-year adjusted EPS forecast. Also, cryptocurrency-exposed stocks rallied after the price of Bitcoin surged more than +8% to a 9-month high. 

Friday’s U.S. economic news was mixed for stocks.  On the bearish side, the University of Michigan’s March U.S consumer sentiment index unexpectedly fell -3.6 to 63.4, weaker than expectations of no change at 67.0.  However, inflation expectations declined after the University of Michigan’s March U.S 1-year inflation expectations indicator fell -0.3 to a nearly 2-year low of 3.8%, and the 5-10 year inflation expectations indicator fell -0.1 to a 6-month low of 2.8%. Also, Feb U.S. manufacturing production unexpectedly rose +0.1% m/m, stronger than expectations of a -0.3% m/m decline.

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed down -1.26%.  China’s Shanghai Composite stock index closed up +0.73%, and Japan’s Nikkei Stock Index closed up +1.20%. 

Today’s stock movers…

First Republic Bank (FRC) closed down more than -32% to lead losers in the S&P 500 as sentiment toward the bank remains negative despite the proposal for $30 billion of aid from a consortium of the biggest U.S. banks. 

Bank stocks were hammered Friday as concerns persist about contagion from the collapse of Silicon Valley Bank and the liquidity problems at Credit Suisse Group AG.  US Bancorp (USB), Comerica (CMA), and Lincoln National Corp (LNC) closed down more than -8%. Also, Truist Financial (TFC), Zions Bancorp (ZION), and Huntington Bancshares (HBAN) closed down more than -7%.  In addition, KeyCorp (KEY) closed down more than -6%.  Finally, Fifth Third Bancorp (FITB), Citizens Financial Corp (CFG), and Cincinnati Financial Corp (CINF) closed down more than -5% 

Meta Platforms (META) closed down more than -4% as the U.S. Federal Trade Commission asked the company for information about how they screen for advertising that promotes fraudulent products.

Ford Motor (F) closed down more than -4% after the company said it is recalling 1.28 million 2013-18 Fusion and Lincoln MKZ vehicles due to the front brake hoses possibly rupturing and leaking brake fluid and recalling 222,454 F-150 vehicles made in 2021 due to the windshield wiper arms possibly breaking. 

Merck & Co (MRK) closed down more than -2% after it said results from a Phase 2 trial of its MK-7864A, a co-formulation of two therapies to treat metastatic non-small cell lung cancer, did not reach statistical significance for the primary endpoint of progression-free survival.

RingCentral (RNG) closed down more than -5% after Oppenheimer downgraded the stock to perform from outperform.

FedEx (FDX) closed up more than +7% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $3.41, well above the consensus of $2.71, and raised its full-year adjusted EPS forecast to $14.60-$15.20 from a previous forecast of $13.00-$14.00, stronger than the consensus of $13.57. 

Newmont (NEM) closed up more than +5% to lead mining stocks higher, as the price of gold jumped more than +2% to an 11-month high.

Cryptocurrency-exposed stocks rallied sharply after the price of Bitcoin surged more than +8% to a 9-month high.  Marathon Digital (MARA), Riot Platforms (RIOT), Coinbase Global (COIN), Hive Blockchain (HIVE), and Stronghold Digital (SDIG) closed up by +5% or more. 

Mega-cap technology stocks moved higher on safe-haven buying from the rout in banking stocks along with the sharp drop in bond yields.  Alphabet (GOOGL), Microsoft (MSFT), Adobe (ADBE), and American Micro Devices (AMD) closed up more than +1%.

Warner Bros Discovery (WBD) closed up more than +1% after Wolfe Research upgraded the stock to outperform from peer perform.

Nvidia (NVDA) closed up +0.72% after Morgan Stanley upgraded the stock to overweight from equal weight.

Across the markets…

June 10-year T-notes (ZNM23) on Friday closed up +1-20/32 points, and the 10-year T-note yield fell by -18.0 bp to 3.397%.  June 10-year T-notes rallied Friday on increased safe-haven demand from the rout in stocks, along with concern that the recent turmoil to rock the banking sector will push the global economy into recession.  T-notes extended their gains Friday on a drop in inflation expectations after the University of Michigan’s March U.S. 1-year inflation expectations indicator fell -0.3 to a 2-year low of 3.8%.  Also, the 10-year breakeven inflation expectations rate dropped to a 1-year low Friday of 2.083%.

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