Bank Headlines, the Fed and Other Things to Watch this Week

We are now another week closer to summer trading! This past week was an exciting one, with further developments on the SVB debacle, a few other banks have started to falter and there is a rumor that the Fed may not be quite as hawkish. 

On the news front, CPI came in line with expectations on the year-over-year number but ran a little hot on the month-over-month number. PPI on the other hand was lower than estimated and retail sales came in weaker as well. It was a mixed week news-wise, but the banking issues are clearly taking the headlines. 

Even with what felt like a constant stream of concerning news, the  S&P 500 ($SPX) (SPY) finished the week up over 1%. The Dow Jones Industrials Index ($DOWI) (DIA) was down -0.15% for the week while the risk on Nasdaq 100 Index ($IUXX) (QQQ) was +5.83% higher.

This week should be equally as exciting, so here are 5 things to watch in the market this week!

Banks

Just because SVB has been backstopped by the Fed does not mean that a contagion event hasn’t happened. If you are a US resident, odds are you received some form of communication from your bank(s) about how secure your funds are. But with the failure of SVB, Silvergate, and Signature banks there is some serious uncertainty about the banking system. Weighing further was the First Republic Bank (FRC) cash infusion, and while this is a positive sign for the depositors on an overall level it could weigh on investors in the coming weeks and months. 

Existing Home Sales

With the inflation debate back in the headlines, not that it really ever left, this and its sister report coming out later this week should show the appetite for larger transactions in the US economy. If this comes in hotter than expected it could be seen as a negative because the Fed still hasn’t reduced demand. On the opposite side, if it comes in cooler, then the market may respond favorably as it would show the Fed's actions are starting to work. 

New Home Sales

New home sales are due out Thursday morning, and similar to Existing home sales it could be a leading marker for future demand in the US market. Much like existing home sales, if it comes in hot it could be seen as a negative, and if it comes in cooler than expected it could be seen as positive. These are often more macro indicators, however, and do not always cause an immediate reaction in the markets.

FOMC

We have the FOMC Statement and the Fed funds rate announcement Wednesday at 

2 pm Eastern. The expected rate announcement is a quarter rate bump to 5% but all eyes are usually on the actual press conference that follows. If the Fed’s rhetoric is more hawkish and Powell uses language that looks like the rates are far from done, then the market could really get volatile. That could also be a catalyst for more downside potential in banks and raising rates to fuel the existing systematic risk surrounding them. On the flip side, if the Fed is dovish then the markets could catch a tailwind and produce some very tradable rallies. Either way, it is best to stay nimble around FOMC day!

Flash PMI

Both Flash Services and Flash Manufacturing PMI are at 9:45 on Friday. These releases could produce some volatility, especially if they both signal to expand market conditions. Furthering the bad news is the good news paradigm, if they come in cooler than expected it could be viewed as positive by the market, and the Fed. 

Best of luck this week and don’t forget to check out my daily options article.

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