Stocks Rally Off Morning Lows

What you need to know…

The S&P 500 Index ($SPX) (SPY) is up +0.36%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.03%.

After a opening up in the red, U.S. stock indexes have rallied into the green this afternoon, despite ongoing concern about the banking sector's stability. 

Treasury Secretary Yellen on Wednesday alarmed the market when she said the U.S. government is not considering a “blanket” protection of deposits.  Ms. Yellen on Thursday had little success in damage control when she said that the government is prepared for further steps to protect bank deposits if needed.

European bank stocks were also under pressure today after Bloomberg News reported that Credit Suisse Group AG and UBS Group AG were among banks under scrutiny in a U.S. Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions.  UBS Group AG is down more than -6%. 

In a sign of strong foreign demand for dollars, Fed data late Thursday showed the Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion in the week through March 22.

Bank of America said EPFR Global data shows investors are fleeing into cash to escape the turmoil in financial markets as global cash funds had inflows of nearly $143 billion in the week through Wednesday, the largest increase since March 2020.  Over the past four weeks, investors have poured more than $300 billion into cash funds. 

Global bond yields are falling sharply due to the banking turmoil.  The 10-year T-note yield today fell to a 6-1/4 month low of 3.280%.  Also, the 10-year German bund yield dropped -8.8 bp to 2.107%, and the 10-year UK gilt yield fell to a 6-week low of 3.132%. 

Today’s U.S. economic news was better-than-expected and supportive for stocks after Feb capital goods new orders nondefense ex-aircraft unexpectedly rose +0.2% m/m, stronger than expectations of a decline of -0.2% m/m.  Also, the Mar S&P manufacturing PMI unexpectedly rose +2.0 to a 5-month high of 49.3, stronger than expectations of a decline to 47.0.

Comments today from St. Louis Fed President Bullard had a hawkish tilt when he said that financial stability issues could be tackled via additional steps to ease bank strains while tighter monetary policy can keep targeting high inflation. 

Overseas stock markets are lower.  The Euro Stoxx 50 today is down -1.97%.  China’s Shanghai Composite stock index closed down -0.64% and Japan’s Nikkei Stock Index closed down -0.13%. 

Today’s stock movers…

Bank stocks are under pressure today as concerns linger about the health of the banking system.  Comerica (CMA), Zions Bancorp (ZION), and Morgan Stanley (MS) are down more than -4%.  Also, State Street (STT) and Bank of New York Mellon (BK) are down more than -3%.  Wells Fargo (WFC), Goldman Sachs (GS), Northern Trust (NTRS), Key Corp (KEY), and US Bancorp (USB) are down more than -2%.  JPMorgan Chase (JPM) is down more than -2% to lead losers in the Dow Jones Industrials.

Incyte (INCY) is down more than -5% to lead losers in the S&P 500 after the FDA didn’t approve the company’s application for its ruxolitinib extended-release tablets and identified additional requirements for the approval. 

A slump of more than -2% in crude prices today is undercutting energy stocks and energy service providers.  Diamondback Energy (FANG) and Marathon Petroleum (MPC) are down more than -3%.  Also, ConocoPhillips (COP), Marathon Oil (MRO), Phillips 66 (PSX), Schlumberger (SLB), Occidental Petroleum (OXY), and Valero Energy (VLO) are down more than -2%.

Scholastic (SCHL) is down more than -21% after reporting a Q3 adjusted loss per share of -57 cents, wider than the consensus of -38 cents, and cutting its full-year revenue forecast to grow about 4%, compared to a previous forecast of growth of 8% to 10%. 

Oxford Industries (OXM) is down more than -14% after forecasting Q1 adjusted EPS of $3.60-$3.80, weaker than the consensus of $4.06.

Block (SQ) is down more than -3% today, adding to Thursday’s -15% plunge after Hindenburg Research said it took a short position in the company and that Block facilitated fraudsters who took advantage of government stimulus programs during the pandemic.

Activision Blizzard (ATVI) is up more than +5% to lead gainers in the S&P 500 and Nasdaq 100 after the UK’s Competition and Markets Authority updated its provisional findings on Microsoft’s acquisition of Activision after new evidence showed the buyout would not result in a substantial lessening of competition in console gaming in the UK.

The plunge in bond yields today and weakness in the broader market is boosting utility stocks.  Ameron Corp (AEE), Evergy (EVRG), CMS Energy (CMS), and DTE Energy (DTE) are up more than +2%.  Also, Consolidated Edison (ED), American Electric Power (AEP), WEC Energy (WEC), CenterPoint Energy (CNP), Duke Energy (DUK), Alliant Energy (LNT), Entergy (ETR), Xcel Energy (XEL), and Eversource Energy (ES) are up more than +1%. 

Intuitive Surgical (ISRG) is up more than +3% after William Baliron Thursday initiated coverage of the stock with a recommendation of outperform.

Netflix (NFLX) is up more than +2% as Bank of America sees positive signs for subscriber trends for the company as it cracks down on password sharing among accounts.

First Horizon (FHN) is up more than +3% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $25.

Genuine Parts (GPC) is up more than +1% after Truist Securities upgraded the stock to buy from hold.

Across the markets…

June 10-year T-notes (ZNM23) today are up +13 ticks, and the 10-year T-note yield is down -7.8 bp at 3.348%.  June T-notes rallied t a 6-3/4 month nearest-futures high today, and the 10-year T-note yield tumbled to a 6-1/2 month low of 3.280%.  T-notes are climbing today as concern about the health of the global banking system is undercutting stocks and fueling safe-haven demand for government debt.  T-notes fell back from their best levels after today’s economic news showed the Mar S&P manufacturing PMI unexpectedly rose to a 5-month high. 

The dollar index (DXY00) today is up by +0.56%.  A slump in equity markets today has sparked liquidity demand for the dollar.  Also, signs of strong foreign demand for dollars are bullish for the greenback after the Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion in the week through March 22.

EUR/USD (^EURUSD) today is down by -0.66%.  Strength in the dollar today has sparked long liquidation in the euro. Also, concern about the health of Europe’s banking system weighed on the euro as banks with high exposure to corporate lending sold off.  In adition, European banks and the euro were under pressure after Bloomberg News reported that Credit Suisse Group AG and UBS Group AG were among banks under scrutiny in a U.S. Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions. 

ECB Governing Council member and Bundesbank President Nagle said, "we have not yet won the fight against inflation," and the ECB will need to continue raising interest rates and should keep them at a high level.

Today’s Eurozone economic news was mixed for the euro.  On the negative side, the March Eurozone S&P manufacturing PMI unexpectedly fell -1.4 to 47.1, weaker than expectations of an increase to 49.0.  Conversely, the March S&P composite PMI rose +2.1 to 54.1, stronger than expectations of unchanged at 52.0 and the fastest pace of expansion in 10 months.

USD/JPY (^USDJPY) today is down by -0.40%.  The yen today rallied to a 7-week high against the dollar.  The ongoing U.S.-European banking woes have boosted the safe-haven demand for the yen.  Also, a plunge in T-note yields today is bullish for the yen.  In addition, today’s economic news that showed  strength in Japan’s service sector supported the yen after the Japan March Jibun Bank services PMI expanded at the fastest pace in more than 9 years.

The Japan Feb national CPI ex-fresh food and energy rose +3.5% y/y, slightly stronger than expectations of +3.4% y/y and the fastest pace of increase in 41 years.

The March Japan Jibun Bank manufacturing PMI rose +0.9 to 48.6.  Also, the March Jibun Bank services PMI rose +0.2 to 54.2, the fastest pace of expansion in more than 9 years.

April gold (GCJ3) this morning is up +4.9 (+0.25%), and May silver (SIK23) is up +0.299 (+1.29%).  Precious metals prices this morning are moderately higher, with silver climbing to a 7-week high. The ongoing turmoil in the banking sector has sent global bond yields plunging and is bullish for precious metals. Also, the recent banking turmoil has sparked fund buying of gold as gold holdings in exchange-traded funds (ETFs) rose to a 5-week high Wednesday.  Limiting gains today in metals is strength in the dollar.

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