Dow Jones futures fell modestly overnight, along with S&P 500 futures and Nasdaq futures ahead of Friday’s February jobs report. SVB Financial continued to fall on Thursday after triggering a sell-off in banking stocks that hit the broader market.
X
Oracle (ORCL) and Ulta is beautiful (Ulta) Revenue declared late.
Stock market gains fell sharply on Thursday as questions about banks’ financial health suddenly came to the fore. The S&P 500 and Nasdaq fell to important support levels.
As banking stocks fell SVP Finance (SIVB), the parent of Silicon Valley Bank, was dented by negative headlines during the long-ailing crypto bank. Silvergate Capital (And) will be closed. Bank of America (BAC), JP Morgan Chase (JPM), Wells Fargo (WFC) and Charles Schwab (Black) were among the biggest losers.
SIVB shares fell of late as fears of a bank move grew.
Investors should remain cautious, waiting for the market rally to show renewed strength.
Main revenue
ORCL shares fell 4% in late trade after Oracle topped earnings, but earnings declined. Oracle shares fell 5.9% to 81.75 on Thursday, falling below its 50-day line. The stock is working from a deep cup-with-handle base at 91.32 buy point.
ULTA shares fell 2% in extended action. Ulta Beauty topped revenue and revenue views, but same-store guidance was lower. The beauty products retailer fell 0.8% to 519.93 on Thursday, just below its 21-day line. There is no clear buy point for ULTA stock.
Statement of Works
The Labor Department will release the February jobs report at 8:30 a.m. ET. Economists expected to see nonfarm payrolls rise to 223,000, a big slowdown from January’s 517,000, but that would still be a rough two-month start to the year. The unemployment rate is expected to hit a 53-year low of 3.4%. Average hourly earnings should rise 0.3%, but annual wage gains should be 4.7%.
On Thursday, Labor announced that initial jobless claims had risen by the largest number since December than expected. Challenger, Gray & Christmas reported that the announced layoff plans were the most to begin in a single year since 2009.
The February jobs report, along with next week’s CPI inflation report, could lock in expectations for a half-point rate hike on March 22.
Dow Jones Futures Today
Dow Jones futures fell 0.4%. 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 fell 9 basis points to 4.81%.
The February jobs report is sure to sway Dow Jones futures, Treasury yields and Fed rate hike expectations.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock market rally
On Thursday, rising jobless claims got the stock market rally off to a good start, but banking worries soon eased. Major indices deteriorated steadily and ended at session lows.
The Dow Jones industrial average fell 1.7% in stock market trading Thursday. The S&P 500 index fell 1.85%, while SIVB shares, First Republic Bank (FRC) and Schwab was the biggest loser. The Nasdaq composite slipped 2.05%. The small-cap Russell 2000, which has a lot of financial components, fell 2.8%.
US crude oil 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 fell 16 basis points to 4.9% and the six-month T-bill yield declined 3 basis points to 5.28%.
Fed rate hike expectations haven’t moved much.
Markets see a 64% chance of a 50-basis-point move on March 22, down from 78.6% on Wednesday. Odds rose from around 30% ahead of Fed Chairman Jerome Powell’s hawkish testimony on Tuesday. Markets are now pricing in 100 basis point rate hikes at the next three Fed meetings, with more likely later in the year.
Bank stocks
SIVB stock fell 60% to 106.04, its lowest price since 2016. SVB Financial announced the $1.75 billion stock sale late Wednesday. Silicon Valley Bank’s parent also cut guidance. Deposits are dwindling as startups face funding shortages. There are also major concerns about SVB loans to the technology sector.
SIVB stock fell 22% overnight in volatile, heavy trading. Bloomberg reports that Peter Thiel’s Founders Fund is advising companies to take money from Silicon Valley banks. SVB Financial has yet to price the stock.
Silvergate Capital, which has been in free fall for months, announced late Wednesday that it will close its Silvergate bank in liquidation. SI stock fell 42%.
The SVB and Silvergate news hit funds, which are already under pressure as a highly inverted yield curve pushes up the traditional debt short/debt long strategy.
keycorp (Important), which warned on net interest margins earlier in the week, fell 7.2% on Thursday. Western Alliance Bancorp (Tail) fell nearly 13%, while FRC stock fell 16.5%.
JPM shares fell 5.4%. On Tuesday, JP Morgan fell below the 138.76 buy point and its 50-day line. PAC stock retreated 6.2% to its lowest level since October. WFC stock also lost 6.2%, falling below its 200-day line after breaking below its 50-day earlier in the week.
SCHW stock fell 12.8%, below the 200-day line and the lowest gap of its base. JPMorgan offered a block sale of 8.5 million Schwab shares, Bloomberg reported. SCHW stock is at its worst level since October.
Investors will look more closely at banks’ books and capital levels, which has not been a real concern so far. Banks raise deposit and CD rates significantly, while long-term rates slow. Many banks are experiencing substantial unrealized losses on loans and other securities.
If banks restrict lending, it will quickly cool the economy. Meanwhile, the woes of SVB Financial and Silvergate Capital raise concerns about their technology and crypto clients.
ETFs
Among growth ETFs, the innovator IBD 50 ETF (FFTY) fell 3.1%. iShares Expanded Technology-Software Sector ETF (IGV) fell 2.3%, ORCL stock is a major IGV component. VanEck Vectors Semiconductor ETF (SMHIt gave up to 1.9%.
Reflecting the more speculative story stocks, the ARK Innovation ETF (ARKKfell 4.2% and the ARK Genomics ETF (ARKG) 3.8%
SPDR S&P Metals & Mining ETF (XME) shed 2.6% and the Global X US Infrastructure Development ETF (sidewalk) 2.2% US Global Jets ETF (JETS) decreased by 3.1%. SPDR S&P Homebuilders ETF (XHBdecreased by 1.6%. Energy Select SPDR ETF (XLEretreated 1.4% and the Health Care Sector SPDR Fund (XLV) 1%.
Fund Selection SPDR ETF (45) fell 4.1%, with JPM stock, Wells Fargo, Charles Schwab and Bank of America all significant stocks. SPDR S&P Regional Bank ETF (Create) fell by 8.2%, the lowest in three years. A significant KRE holding is the SIVB stake, along with KeyCorp and Western Alliance.
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Market rally analysis
The stock market rally had a very negative day, with a negative reversal damaging major indices and leading stocks.
The S&P 500 opened higher above its 50-day line, but soon hit resistance at the 21-day moving average and returned below its 200-day line and its March 2 low.
The Nasdaq initially rose above its 21-day line, but then retreated below the 200-day line. The technical-heavy mix briefly touched its 50-day and settled just above that level.
The Dow Jones fell below its 200-day line to a four-month low.
The Russell 2000 fell below its 50-day line and below its 200-day line.
Some leaders persisted, but most did not.
The banking worries fueled by SIVB stock, Silvergate and KeyCorp do not mean a financial crisis is imminent. Banks, especially giants like JP Morgan and Bank of America, are much better capitalized than they were during the 2007-2009 financial crisis. But the mere mention of the words “financial crisis” is a big change.
If banks lend aggressively, it can quickly affect the wider economy. This raises the risk that the Federal Reserve will overdo rate hikes and trigger a hard landing.
Friday’s jobs report will be important, but so will market reaction. Remember that lagging employment data will not provide warning if the economy suddenly stalls.
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What to do now
With the S&P 500 and other major indexes heading south again, now is not the time to add exposure. Investors should cut losses on recent purchases that are struggling.
Perhaps the market rally will again find support with a decent jobs report or upcoming inflation data, but optimism is not a strategy. Major indices are on the cusp of breaking down decisively.
On the upside, wait for the S&P 500 and Nasdaq to retrace 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 tune with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.
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