Dow Jones futures were little changed after hours, along with S&P 500 futures and Nasdaq futures.
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The stock market rally rebounded strongly on Thursday morning but major indices pared intraday gains while the Russell 2000 hit a fresh 2023 low as Moody’s Investor Service warned of broader bank contagion and the consequences economic. Stocks rose late in the session as Treasury Secretary Janet Yellen promised “additional stock” for bank deposits if needed. On Wednesday, the main indices fell sharply on Yellen’s comments and the Federal Reserve’s rate hike.
Bank stocks were big losers on Thursday. First Republic (FRC) skidded to a record low and PacWest Bancorp (PACW) to an all-time closing low. But the superregionales like keycorp (KEY) and commercial (CMA) was also sold, even with some giants like Bank of America (BAC) reaching multi-year lows.
At the top, houses of merit (MTH) and KBH shares showed buy signals amid strong KB Home (KBH) Earnings and action generally strong among builders. Microsoft (MSFT) returned to trading above a buy point. yum china (YUMC) broke out. The VanEck Semiconductor ETF (SMH) broke above a buy point, offering a way to play the chip sector with NVDA stocks and plenty of extended hot semis.
MTH shares and nvidia (NVDA) are in the IBD classification. MSFT shares are among the long-term leaders of IBD. Meritage and KBH shares are in the IBD 50, along with several other homebuilders. Meritage Homes is Thursday’s IBD Action of the Day.
But investors must remain cautious. Yes, there is a rally attempt underway, but it is still a market correction. The rally attempt remains divided and volatile, with the banking sector a major negative.
Moody’s: Banking ‘turmoil’ in general is a risk
There is a growing risk that regulators “will not be able to reduce the current turmoil without longer lasting and potentially serious repercussions within and beyond the banking sector.” That could unleash “greater financial and economic damage than we anticipated,” Moody’s Investor Service warned on Thursday. Even so, the credit rating agency still expects policymakers to “succeed overall.”
Bank stocks and major indexes dipped from afternoon lows as Treasury Secretary Yellen said in prepared remarks to a House committee that the administration “would be prepared to take further action if warranted.”
That line aside, Yellen largely reiterated comments Wednesday before a Senate panel, when she said officials are not looking to extend a “blanket” guarantee to all deposits at all banks. That comment helped trigger the market’s bearish reversal on Wednesday. However, Yellen had previously indicated that any bank that is in trouble will encourage more deposit guarantees.
The FDIC aims to announce the fate of SVB Financial’s Silicon Valley Bank over the weekend, Barron’s Advisor reported Thursday.
Dow Jones Futures Today
Dow Jones futures were up 0.2% against fair value. S&P 500 futures rose 0.1%. Nasdaq 100 futures were flat.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading at the next regular stock market session.
Join IBD experts as they discuss actionable actions in the stock market rally on IBD Live
stock rally
The stock market’s attempted rally saw large intraday gains fade, although major indices closed higher after turning mixed in mid-afternoon.
The Dow Jones industrial average rose 0.2% in trading on Thursday. The S&P 500 index rose 0.3%, with Bank of Zions (ZION), Comerica and KEY have the three worst results. The Nasdaq Composite rose 1%. The small-cap Russell 2000 declined 0.8%.
US crude prices fell 1.3% to $69.95 a barrel. Copper futures rebounded 1.9%, up 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 signals from the Fed on Wednesday that the central bank will raise once more, markets see a 65% chance of a pause in May, up from 50.1% on Wednesday and 39.7% on Tuesday. . Investors expect the Fed’s rate cuts to start this summer.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.7%. The iShares Expanded Technology Software Sector ETF (IGV) rallied 1.5%, with Microsoft shares a key component. The VanEck Vectors Semiconductor (SMH) ETF rose 2.7%. NVDA shares are a major holding of SMH.
Reflecting more speculative historical stocks, the ARK Innovation ETF (ARKK) fell 1.5% and the ARK Genomics ETF (ARKG) gained 0.7%. coin base (COIN) and square parent Block (SQ), both of Ark Invest’s holdings in the top 10, fell more than 10% on Thursday.
SPDR S&P Metals & Mining ETF (XME) rose 0.3% and Global X US Infrastructure Development ETF (PAVE) fell 0.3%. The US Global Jets ETF (JETS) fell 1%. SPDR S&P Homebuilders ETF (XHB) closed just below breakeven. The Energy Select SPDR ETF (XLE) declined 1.4%. The Select Healthcare Sector (XLV) SPDR Fund was down 0.2%.
The Financial Select SPDR ETF (XLF) fell 0.7%, setting a five-month low. BAC shares are a notable holding of XLF. SPDR S&P Regional Banking ETF lost 2.8%, reaching the worst levels since the end of 2020. First Republic, PACW, KEY and CMA shares are all KRE holdings.
Five best Chinese stocks to watch now
Market recovery analysis
For the second session in a row, the market’s attempted rally led to large intraday gains. On Wednesday, the main indices fell sharply back. They closed higher on Thursday, but it was not the action you want to see in a market rally.
The Nasdaq continued to rise solidly on the back of mega-cap technologies like shares of Microsoft, Nvidia and metaplatforms (GOAL). But it was an inside day, giving up more than half of its intraday rebound of 2.5%.
The S&P 500 bounced from its 200-day line, but found resistance near its 50-day line. The Invesco S&P 500 equal-weight ETF (RSP), which is not dominated by such mega-cap technologies, fell 0.35%, hitting a five-month intraday low.
The Dow Jones tried to recapture the 200-day line but pared gains. The Russell 2000 opened strong but pulled back lower as bank stocks deteriorated again.
The chip sector still looks strong. nvidia Stock, Aehr test systems (AEHR) and a few others have higher power, but are usually extended. Several others, like applied materials (AMAT), they are close to the buy areas, but they are not really outperforming the SMH ETF.
Home builders look strong. Shares of KBH and Meritage rose towards official buy points but pared intraday gains.
YUMC shares came off a flat base. Yum China’s profits should rise in 2023 with the lifting of Covid restrictions.
But the width is narrow.
A sustained market recovery is almost impossible if the banking crisis worsens. SVB Financial was an outlier in many ways, so it was a bad sign to see other California-based banks such as FRC and PacWest stocks coming under pressure. Much worse if superregionals like CMA and KeyCorp stocks start to give way. BAC shares are at their worst level since 2020. Even JPMorgan Chase (IBD), among the best-capitalized banks, is testing recent 2023 lows and its 200-day line.
Former FDIC chief Sheila Bair told MarketWatch on Thursday that the problem of unrealized bond losses “is a risk faced by all banks,” not just regional players.
Time the Market with IBD’s ETF Market Strategy
What to do now
The market rally attempt is split, volatile and news driven. It is not a confirmed uptrend.
Investors may try to play some leaders. But while some, like Nvidia and when holding (ONON) have worked, many others have failed. Anyone who bought stocks strongly in the last two days is likely to have at least modest losses.
So keep your exposure light and cut losses fast. With winners, consider taking at least partial profits quickly to ensure you make a profit.
There is nothing wrong with staying fully or completely in cash until there is a sustained market rally with bottom bank holders.
Either way, investors must remain engaged and ready to act. That means being prepared with up-to-date watchlists, as well as having exit strategies in place.
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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