Dow Jones futures fell modestly overnight, along with futures for the S&P 500 and Nasdaq ahead of Friday’s February jobs report. SVB Financial continued to slide after triggering a sell-off in bank shares that hit the broader market on Thursday.
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Oracle (ORCL) and Ulta Beauty (ULTA) reported earnings late.
The stock market rally reversed sharply lower on Thursday as questions suddenly arose about the banks’ finances. The S&P 500 and the Nasdaq fell to critical support levels.
Bank shares plummeted financial SVB (SIVB), parent of Silicon Valley Bank, tanked on a series of negative headlines as the crypto bank was in trouble. Silvergate Capital (YES) said it would close. Bank of America (BAC), JPMorgan Chase (JPM), fargo wells (WFC) and charles schwab (SCHW) were among the high-profile losers.
SIVB shares continued to fall late as fears of a bank run grew.
Investors should be cautious, hoping that the market rally will show renewed strength.
key gains
ORCL shares fell 4% at the end of trading after Oracle’s earnings topped but revenue fell short. Oracle shares fell 5.9% to 81.75 on Thursday, dipping below its 50-day line. The stock has been working on a buy point of 91.32 from a deep cup-handled bottom.
ULTA shares fell 2% in extended action. Ulta Beauty’s profit and revenue topped the views, but same-store guidance was light. The beauty supply retail giant fell 0.8% to 519.93 on Thursday, just below its 21-day line. ULTA shares do not have a clear buy point.
job report
The Labor Department will release the February jobs report at 8:30 am ET. Economists expect to see nonfarm payrolls rise to 223,000, a big slowdown from January’s 517,000, but it would still be a good two-month start to the year. The unemployment rate should hold at a 53-year low of 3.4%. Median hourly earnings should rise 0.3%, but annual wage gain should rise as much as 4.7%.
On Thursday, Labor reported that initial jobless claims rose more than expected to their highest number since December. Challenger, Gray & Christmas reported that the announced layoff plans are the highest to start a year since 2009.
The February jobs report, along with next week’s CPI inflation report, could bolster expectations of a half-point rate hike on March 22.
Dow Jones Futures Today
Dow Jones futures fell 0.4% against fair value. S&P 500 futures fell 0.5% and Nasdaq 100 futures fell 0.5%.
The 10-year Treasury yield fell 4 basis points to 3.88%. The 2-year yield plunged 9 basis points to 4.81%.
The February jobs report is sure to change Dow Jones futures, Treasury yields and Fed rate hike expectations.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading at the next regular stock market session.
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stock rally
The stock market rally got off to a decent start on Thursday on rising jobless claims, but was soon reversed lower on concerns from banks. The major indices steadily worsened, closing near session lows.
The Dow Jones industrial average plunged 1.7% in trading on Thursday. The S&P 500 Index fell 1.85%, with SIVB stocks, Bank of the First Republic (FRC) and Schwab the biggest losers. The Nasdaq Composite slid 2.05%. The small-cap Russell 2000, which has many financial components, plunged 2.8%.
US crude prices fell 1.2% to $75.72 a barrel.
The 10-year Treasury yield fell 5 basis points to 3.92%. The two-year Treasury yield plunged 16 basis points to 4.9%, while the six-month Treasury bill fell 3 basis points to 5.28%.
The Fed’s rate hike expectations did not budge much.
Markets see a 64% chance of a 50 basis point move on March 22, down from 78.6% on Wednesday. The odds rose to around 30% ahead of hawkish testimony from Fed chief Jerome Powell on Tuesday. Markets are now pricing in 100 basis points of rate hikes over the next three Fed meetings, with a decent chance of more later in the year.
bank stocks
SIVB shares plunged 60% to 106.04, the lowest price since 2016. SVB Financial announced a $1.75 billion share sale Wednesday night. Silicon Valley Bank parent also cut guidance. Deposits are declining as startups face a funding drought. There are also big concerns about SVB’s lending to the tech industry.
SIVB shares fell 22% overnight in heavy and volatile trading. The Peter Thiel Founders Fund is advising companies to withdraw money from Silicon Valley Bank, Bloomberg reported. SVB Financial has yet to price that share offering.
Silvergate Capital, which has been in free fall for months, announced Wednesday night that it would close and its Silvergate Bank would be wound up. SI shares fell 42%.
The news from SVB and Silvergate hit financials, which were already under pressure as the extremely inverted yield curve upsets the traditional short-lend/long-lend strategy.
keycorp (KEY), which warned about net interest margins earlier in the week, fell 7.2% on Thursday. Western Alliance Bank (WAL) fell nearly 13%, and FRC shares plunged 16.5%.
JPM shares fell 5.4%. On Tuesday, JPMorgan fell below a buy point of 138.76 and its 50-day line. BAC’s shares fell 6.2% to their lowest levels since October. WFC shares also lost 6.2%, falling below its 200-day line after breaking below its 50-day line earlier in the week.
SCHW shares fell 12.8%, falling below the 200-day line and its base low. JPMorgan has offered a block sale of 8.5 million Schwab shares, Bloomberg reported. SCHW shares are at their worst levels since October.
Investors will take a much closer look at banks’ books and capital levels, something that hasn’t been a real concern until now. Banks are raising deposit and CD rates significantly, while long-term rates lag behind. Many banks are sitting on sizeable unrealized losses on loans and other securities.
If banks rein in lending, that could quickly freeze the economy. Meanwhile, the issues at SVB Financial and Silvergate Capital raise concerns about their tech and crypto clients.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.1%. The iShares Expanded Technology Software (IGV) Sector ETF fell 2.3%, with ORCL shares a large component of IGV. The VanEck Vectors Semiconductor (SMH) ETF fell 1.9%.
Reflecting stocks from more speculative stories, the ARK Innovation ETF (ARKK) plunged 4.2% and the ARK Genomics ETF (ARKG) 3.8%.
SPDR S&P Metals & Mining ETF (XME) lost 2.6% and Global X US Infrastructure Development ETF (PAVE) lost 2.2%. US Global Jets ETF (JETS) fell 3.1%. SPDR S&P Homebuilders ETF (XHB) was down 1.6%. The Energy Select SPDR ETF (XLE) fell 1.4% and the Health Care Select Sector SPDR Fund (XLV) 1%.
The Financial Select SPDR ETF (XLF) plunged 4.1%, with shares of JPM, Wells Fargo, Charles Schwab and Bank of America leading holdings. The SPDR S&P Regional Banking ETF (KRE) sank 8.2% to a three-year low. SIVB shares are a notable holding of KRE, along with KeyCorp and Western Alliance.
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Market recovery analysis
The stock market rally had a very negative day, with a downward reversal hurting major indices and major stocks.
The S&P 500 opened higher above its 50-day line, but soon found resistance at the 21-day moving average and pulled back lower below its 200-day line and March 2 low.
The Nasdaq initially rallied above its 21-day line, but then reversed below the 200-day line. The high-tech compound briefly chipped away at its 50 days before settling just above that level.
The Dow Jones stabbed below its 200-day line to a four-month low.
The Russell 2000 decisively fell below its 50-day line, all the way to its 200-day line.
Some leaders held, but most did not.
Banking concerns sparked by actions by SIVB, Silvergate and KeyCorp do not mean a financial crisis is on the way. Banks, especially giants like JPMorgan and Bank of America, are much better capitalized than they were in the financial crisis of 2007-2009. But the fact that the words “financial crisis” are mentioned is a big change.
If banks clamp down on lending aggressively, that would quickly hit the broader economy. That would also increase the already considerable risk that the Federal Reserve will outpace rate hikes, causing a hard landing.
The jobs report on Friday will be important, but what matters is the reaction of the market. Keep in mind that if the economy suddenly stagnates, lagging employment data will not offer a warning.
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What to do now
With the S&P 500 and other major indices heading south once again, now is not the time to add exposure. Investors should look to cut losses on recent purchases that are struggling.
Perhaps the market rally will find support again with a subdued jobs report or upcoming inflation data, but hope is not a strategy. The key indices are about to break decisively lower.
On the upside, wait for the S&P 500 and Nasdaq to resume their 21-day lines. If that happens, new buying opportunities will emerge. So keep working on those watch lists.
Read The Big Picture every day to stay in sync with market direction and major stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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