Dow Jones futures fell Friday morning, along with S&P 500 futures and Nasdaq futures, as Deutsche Bank shares sold off on rising default risks.
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Bank stocks already tumbled on Thursday, as an attempt to rally the market again faltered and fizzled out. The Nasdaq closed solidly higher but far from its best levels, while the Russell 2000 hit new 2023 lows as Moody’s Investor Service warned of a wider bank transition and economic fallout. Stocks rallied late in the day after Treasury Secretary Janet Yellen promised to take “additional action” on bank deposits if needed.
first republic (FRC) slipped to a record low and PacWest Bancorp (PACW) at an all-time low. but superregional like keycorp (key) and comerica (CMA) also sold out, even some veterans such as Bank of America (BAC) is at a multi-year low.
Meritage Homes (MTH) and KBH shares show buying signals amid strength KB Home (KBH) earnings. Microsoft (MSFT) traded above a buy point. yam china (YUMC) broke up. The VanEck Semiconductor ETF (SMH) cleared a buy point, offering a way to play the chip sector with NVDA stock and raising several hot semis.
mth stock and NVIDIA (NVDA) are on the IBD leaderboard. MSFT stock is on the IBD Long-Term Leaders. Meritage and KBH stocks are on the IBD 50, along with several other homebuilders. Meritage Homes is Thursday’s IBD Stock of the Day.
But investors should be cautious. Yes, there is a rally attempt underway, but this is still a market correction. The rally effort remains divided and volatile, with the banking sector a major negative.
Deutsche Bank is the latest worry
Banking fears shifted from US regional banks to European giants once again on Friday.
DB stock fell 10% in early Friday trading as it cost to insure against a default spike. Deutsche Bank stock fell 6% on Thursday to a five-month low. The German giant has been a struggling bank for a long time. Other European bank stocks also declined.
In the US, regional banks and giants such as First Republic and BAC stocks fell marginally to solidly ahead of the open.
Moody’s: Widespread bank ‘upheaval’ a risk
There is a growing risk that regulators “will be unable to ease the current turmoil without long-lasting and potentially serious repercussions within and outside the banking sector.” “The financial and economic damage could be far greater than we had anticipated,” Moody’s Investor Service warned Thursday. Nevertheless, the credit-ratings agency still expects policy makers to be “broadly successful”.
Bank stocks and major indexes edged lower in the afternoon as Treasury Secretary Yellen said in prepared remarks to a House committee that the government would “stand ready to take additional action if necessary.”
Beyond that line, Yellen largely reiterated Wednesday’s remarks to the Senate panel, when she said officials do not seek to extend the “full” guarantee to all deposits at all banks. That comment helped trigger Wednesday’s downside market reversal. However, Yellen previously indicated that any bank that struggled would step up deposit guarantees.
The FDIC aims to announce the fate of SVB Financial’s Silicon Valley bank over the weekend, Barron’s Advisors reported Thursday.
dow jones futures today
Dow Jones futures fell 1% versus fair value. S&P 500 futures lost 0.9% and Nasdaq 100 futures lost 0.55%. Futures suggest the S&P 500 will lower its 200-day line on Friday’s open.
The 10-year Treasury yield fell 10 basis points to 3.31%. The 2-year yield fell 22 basis points to 3.59%.
Crude oil futures lost more than 3%.
Remember that overnight action in Dow futures and elsewhere does not translate into actual trading in the next regular stock market session.
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stock market rally
Large intraday gains were pared down in an attempt to rally the stock market, although major indices closed higher after a mixed mid-day.
The Dow Jones Industrial Average climbed 0.2% in Thursday’s stock market trading. S&P 500 index rose 0.3 percent zions bancorp (Zion), Comerica and Key stocks are the three worst performers. The Nasdaq Composite climbed 1%. The small-cap Russell 2000 declined 0.8%.
US crude oil prices fell 1.3% to $69.95 per barrel. Copper futures jumped 1.9%, 7.5% during a six-session winning streak.
The 10-year Treasury yield fell 9 basis points to 3.41%. The two-year yield fell 17 basis points to 3.81%.
Despite the Fed indicating on Wednesday that the central bank will hike once more, markets have a 66% chance of a pause in May, up from 50.1% on Wednesday and 39.7% on Tuesday. Investors expect the Fed to start cutting rates this summer.
ETF
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 0.7%. The iShares Extended Tech-Software Sector ETF (IGV) rose 1.5%, with Microsoft stock a major component. The VanEck Vectors Semiconductor ETF (SMH) rose 2.7%. NVDA Stock is a major SMH holding.
Reflecting more-speculative story stocks, the ARK Innovation ETF (ARKK) rose 1.5% and the ARK Genomics ETF (ARKG) rose 0.7%. coinbase (COIN) and Square-Parent block (SQ), both top-10 Ark Invest holdings, fell more than 10% on Thursday.
The SPDR S&P Metals & Mining ETF (XME) dipped 0.3% and the Global X US Infrastructure Development ETF (PAVE) dipped 0.3%. The US Global Jets ETF (JETS) dropped 1%. The SPDR S&P Homebuilders ETF (XHB) closed just below break-even. The Energy Select SPDR ETF (XLE) declined 1.4%. The Health Care Select Sector SPDR Fund (XLV) fell 0.2%.
The Financials Select SPDR ETF (XLF) gave up 0.7% to a five-month low. BAC Stock is a notable XLF holding. The SPDR S&P Regional Banking ETF shed 2.8%, hitting its worst level since late 2020. First Republic, PACW, KEY and CMA Stock are all KRE holdings.
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Market Rally Analysis
For the second straight session, the market’s rally attempt capped large intraday gains. On Wednesday, there was a huge decline in the major indices. On Thursday, they closed higher, but this was not the action you want to see in a market rally.
Nasdaq still solidly up thanks to Microsoft stock, Nvidia and megacap tech meta platform (meta). But it was an inside day, giving up more than half of its 2.5% intraday bounce.
The S&P 500 bounced off its 200-day line, but touched resistance near its 50-day. The Invesco S&P 500 Equal Weight ETF (RSP) fell 0.35%, hitting a five-month low.
The Dow Jones tried to retest the 200-day line, but lost gains. The Russell 2000 opened strong but ended lower as bank stocks again declined.
The chip sector is still looking strong. nvidia stock, ehr test system (AEHR) and some others giving higher power, but are generally extended. many others, such as Applied Materials (AMAT), are near buy zones, but aren’t really outperforming the SMH ETF.
The house builders are looking strong. KBH Stock and Meritage moved towards official buy points but capped intraday gains.
YUMC stock broke from a flat base. Yama China’s earnings should boom in 2023 as Covid restrictions are lifted.
But the width is less.
If the banking crisis worsens, a sustained rally in the market is almost impossible. SVB Financial was different in many ways, so other California-based banks like FRC Stock and PacVest coming under pressure was a bad sign. It’s even worse if superregionals like CMA Stock and KeyCorp start buckling up. BAC stock is at its worst level since 2020. even JPMorgan Chase (IBD), one of the best capitalized banks, is testing the recent 2023 low and its 200-day line.
Ex-FDIC chief Sheila Barr told MarketWatch on Thursday that the issue of unrealized bond losses “is a risk facing all banks,” not just regional players.
Tim the market with IBD’s ETF market strategy
What do we do now
The market’s rally effort is divided, volatile and news-driven. This is not a confirmed uptrend.
Investors may try to play the role of some leaders. But while some, such as Nvidia and on holding (ONON) has worked, many others have failed. Anyone who bought the stock on strength over the past two days is sitting on at least a modest loss.
So keep your risk thin, cut losses quickly. With winners, consider taking at least partial profits early to ensure that you end up with a profit.
There is nothing wrong with living entirely or completely in cash, as long as there is a sustained market rally with bank headlines in the background.
Either way, investors must be engaged and ready to act. This means being prepared with an up-to-date watchlist as well as preparing your exit strategies.
Read The Big Picture every day to keep up with market direction and the leading stocks and sectors.
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Source: www.investors.com
