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Main U.S. indexes end down >1%
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All S&P 500 sectors fall: real estate weakest group
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S&P 500 banks index rebounds, ends off just ~0.5%
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Dollar, bitcoin fall; gold, crude advance
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U.S. 10-Year Treasury yield collapses to ~3.68%
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FED FEARS + BANK JITTERS + MIXED JOBS REPORT = ONE BAD WEEK (1604 EST/2104 GMT) Wall Street's indexes slid on Friday as investors stressed out about the health of U.S. banks, overshadowing the February jobs report, which appeared to somewhat ease rat-hike worries. That said, the pace of bank stock bleeding at least slowed on Friday. The S&P 500 banks index , after sliding as much as 4.4% early in the session, recovered back into positive territory for a time, before ending down only around 0.5%. Still, for the week, the SPXBK fell more than 11% for its worst week since March 2020. The KBW regional bank index lost just over 12% for its biggest weekly drop since May 2020. For the week, the DJI lost 4.4% for its worst week since June 2022, the S&P 500 fell 4.5% for its biggest weekly decline since September of last year, and the Nasdaq Composite lost 4.7% for its worst week since early November of last year. This as the U.S. 10-Year Treasury yield is on pace to end a six-week win streak, tumbling from 3.9630% last Friday to just under 3.70%. Investors now look forward to the latest CPI data on Tuesday of next week and PPI and retail sales reports on Wednesday.
Here is Friday's closing snapshot:
(Terence Gabriel)
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NEXT UP: EXPECTED FALL IN Q1 EARNINGS (1528 EST/2028 GMT) Earnings talk will soon turn to reports on Q1 2023, with 497 S&P 500 companies now having reported on the fourth quarter of 2022, and estimates continuing to decline for upcoming earnings periods. Based on IBES data from Refinitiv as of Friday, analysts at this point are expecting S&P 500 first-quarter earnings to fall 4.6% compared with the year-ago period. Fourth-quarter earnings are now estimated to have fallen 3.2% year-over-year. Oracle put the spotlight on the new reporting period late Thursday, when it reported quarterly revenue that narrowly missed analysts' expectations. But the next reporting period is not expected to really heat up until mid-April, when big financial companies are due to begin reporting on the current quarter.
(Caroline Valetkevitch)
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MANY INDIVIDUAL INVESTORS STUCK IN NEUTRAL -AAII (1315
EST/1815 GMT)
Neutral sentiment rose, extending its streak of above-average readings to 10 consecutive weeks, in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, bullish sentiment increased slightly, but remained "unusually low," while bearish sentiment dipped, but remained "unusually high."
AAII reported that neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, gained by 1.6 percentage points to 33.4%. At 10 consecutive weeks, this is the longest stretch of above-average readings since a 22-week stretch between August 2019 and January 2020. The historical average for neutral sentiment is 31.5%. Bullish sentiment, or expectations that stock prices will rise over the next six months, rose 1.4 percentage points to 24.8%. Optimism is at an "unusually low level for the third consecutive week and the 43rd time out of the past 62 weeks." Bullish sentiment is also below its historical average of 37.5% for the 66th time out of the past 68 weeks.
Bearish sentiment, or expectations that stock prices will fall over the next six months, declined 3.1 percentage points to 41.7%. Pessimism is at an "unusually high level for the second consecutive week and the 41st time out of the past 62 weeks." Bearish sentiment is also above its historical average of 31.0% for the 63rd time out of the past 68 weeks. With these changes, the bull-bear spread narrowed to -16.9 percentage points from -21.4 percentage points last week. The spread remains "unusually low for the third consecutive week," and is at an "unusually low level for the 45th time out of the past 62 weeks":
AAII noted "historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and the bull-bear spread." AAII added that "similarly, the market benchmark has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually high readings for bearish sentiment."
(Terence Gabriel)
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MARKET SHOULD BOTTOM NEXT WEEK IN SPITE OF FINANCIALS (1240 EST/1740 GMT) The S&P 500 financial sector , although down around 1% in midday trade, is well off its low on Friday, as banks rebounded from Thursday's selloff, but the financial sector is still down about 8% for the week, leading sector declines. The sector had sold off in connection with SVB Financial's efforts to raise capital and concerns about the banking group's health, but the S&P 500 selloff tied to financial woes should bottom by next week, Mark L. Newton, head of technical strategy at Fundstrat, wrote in a note late Thursday. "While the decline in Financials looks quite serious, other sectors like Technology and Industrials, which had shown above-average strength over the last month, were not nearly as adversely affected," he wrote. He said his "cyclical model" hits a bottom next Wednesday. "While many might think a breach of the 200-day moving again swings trends back to bearish, I'm confident that the Technology, Discretionary, and Industrials resilience coupled with a good amount of Small-cap and Mid-cap strength, above-average intermediate-term breadth and negative sentiment likely brings about a low for stocks next week." The last half of March should "fare much better" than the first half of the month "regardless of financials weakness," he added.
(Caroline Valetkevitch)
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RUNNING HOT AND COLD: A JOBS REPORT DEEP DIVE (1145 EST/1645 GMT) The Labor Department's long awaited February employment report made a grand entrance, barging onstage and bursting with surprises that had market participants revisiting their wagers on the size of the Fed's next rate hike. The U.S. economy added 311,000 jobs in February , landing 106,000 to the north of consensus.
It marks the tenth straight month of above-expectations job growth, which has been above the 200,000 mark every month since January 2021. "Despite a stronger-than-expected headline number ... the read between the lines offered a faint signal that a loosening labor market may be underway," writes Charlie Ripley, Senior Investment Strategist for Allianz Investment Management.
Even so, the report has mixed signals for Fed watchers. "The pace of job growth is still too rapid for the Fed's liking and leaves the Fed on track to raise rates at each of the next three meetings," says Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
The closely-watched hourly wage growth element of the report provided a dose of good news by cooling on a monthly basis, falling to 0.2% from January's 0.3%. On an annual basis, wage inflation heated up nominally to 4.6%, but that number was a shade cooler than the anticipated 4.7%. "The underlying inflation indicators were more muted," says Sam Stovall, chief investment strategist of CFRA Research. "This likely reduced the anxiety heading into next week’s inflation reports." Even so, an upward move in annual inflation is a step in the wrong direction. Market participants will just have to sit tight until Tuesday's CPI report for another take on just what inflation did last month. Here's a look at annual wage growth along with other major indicators, and how far they have to fall before reaching the Fed's average annual 2% inflation target.
In another bit of good news, the stubbornly low labor market participation rate eked out a nominal gain, rising 0.1 of a percentage point to 62.5%. The increase likely contributed somewhat to the unexpected rise in the jobless rate - to 3.6% from 3.4% - because when one is standing at the labor market's sidelines, they are not considered unemployed. "There is still a mountain of evidence that labor is in short supply, but today's data suggests that we may have hit a turning point in rebalancing supply and demand in the labor market," writes Thomas Simons, economist at Jefferies. While the participation rate has been on a glacial upward trajectory since January 2021, it still remains 80 basis points below the pre-pandemic reading of February 2020.
Looking closer at the jobless data, a breakdown by duration hints at further loosening in the labor market. The uptick in the short term jobless' share of total unemployment, along with the decrease in the size of long-term's slice of the pie, suggests layoffs are increasing but folks aren't staying jobless for too long. This hints at the possibility that the still elevated level of job openings, suggested by recent JOLTS data, could be coming back to earth, thereby returning the demand/supply imbalance in the labor market closer to something resembling equanimity:
But breaking down the unemployment by race and ethnicity, while the jobless rate among White workers grew slightly, unemployment among Asian, Hispanic and Black Americans grew at a faster pace. While the White/Black jobless gap has been on a welcome downward trajectory since August 2020, it jumped by 20 basis points last month to 2.5 percentage points.
All in all, the report has something for Polyannas and Debbie Downers, but the general feeling is it gives Powell & Co some wiggle room to hike rates by 25 basis points, rather than the larger hike that seemed to be threatened by Powell's hawkish congressional testimony this week. "As the Fed examines the data, they will be encouraged with wages rising at a slower pace and the participation rate ticking higher," Ripley adds. "On balance, the employment report wasn’t strong enough to put a 50 basis point hike back on the table."
(Stephen Culp)
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MAD DONKEY...BIT HARSH ON THE DONKEY (1032 EST/1532 GMT) BofA's 'Heard on the Street' anecdote went with a little horse play this week - "Like watching a mad donkey thrashing around in a field bouncing off all the fences… investor on stock market of 2023." Probably a bit harsh on the poor donkey though if Friday's market melee related to Silicon Valley Bank is any gauge of sanity. BofA's always-insightful Flow Show weekly note went on to show that investments in U.S. money market funds have soared to a new all-time high of $4.9 trillion, as rising interest rates have leave boring old cash looking pretty rewarding these days. It certainly better for the pulse rate than banks that bankroll tech startups too.
(Marc Jones)
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U.S. STOCKS STAGGER AS BANK BATTERING CONTINUES (1002 EST/1502 GMT) The main U.S. stock indexes are lower early on Friday dragged down by bank stocks, while investors weighed cooling February wage growth data to determine future interest rate hikes from the Federal Reserve. In any event, bank stocks remain especially weak with the S&P 500 banks index sliding nearly 2%, bringing its week-to-date decline to nearly 13%. With this, it is on pace for its biggest weekly drop since March 2020. That said, the banks index was down as much 4.4% earlier in Friday's session.
Of note, the U.S. 10-Year Treasury yield's six week win streak looks set to come to an end. The yield is plunging to the 3.70% area. It closed at 3.9630% last Friday. Additionally, implied volatility is jumping. The VIX has hit its highest level since mid December. Meanwhile, the S&P 500 index , now around 3,905, is flirting with the former resistance line from its January 2022 record high, which should now provide support at around 3,895. The SPX's low so far on Friday was 3,878.01. Traders will be looking to assess the SPX vs this line into the close. The Jan. 10 low was at 3,877.29 and the 38.2% Fibonacci retracement of the March 2020-January 2022 advance is at 3,815.20. May 2022 and December 2022 lows were in the 3,810-3,764 area.
Here is a snapshot of where markets stood just shortly after 1000 EST:
(Terence Gabriel)
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U.S. STOCK FUTURES RISE AFTER JOBS DATA, AND AMID BANK
JITTERS (0900 EST/1400 GMT)
U.S. equity index futures are rising slightly in the wake of
the release of the latest data on U.S. employment.
The February non-farm payroll headline jobs number came in
at 311k, which was above the 205k estimate. However, the
unemployment rate was 3.6% vs a 3.4% estimate. Of note, wage
data, on a month-over-month and year-over-year basis, was cooler
than expected:
The data has eased rate-hike fears somewhat. According to the CME's FedWatch Tool , the probability of a 25 basis point rate hike at the March FOMC meeting is now 56% from 41% just before the numbers were released. There is now around a 44% chance of a 50-basis-point hike from around 59% prior to the data coming out. CME e-mini Nasdaq 100 futures are leading U.S. equity index futures higher, gaining around 0.6%. Amid bank jitters, the futures were around flat just before the numbers came out.
A majority of S&P 500 sector SPDR ETFs are higher in premarket trade, though all moves are relatively modest. Tech is showing the biggest gain, up around 0.5%, while financials are posting the biggest loss at 0.6%. Regarding the jobs data, Adam Sarhan, chief executive at 50 Park Investments, said, "The jobs report is confirming what Powell told us earlier in the week... that the Fed has more work to do before we can get inflation under control." Sarhan added "In bear markets, like we are in now, it's sell the rumor and buy the news. So they sold first and are now buying. Also, technically, the S&P 500 is bouncing off of critical support. If the level is defended, that's going to be somewhat bullish here." Here is a premarket snapshot just shortly before 0900 EST:
(Terence Gabriel, Caroline Valetkevitch)
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FOR FRIDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE
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NFP03102023LM premarket03102023 Earlytrade03102023 Nonfarm payrolls Inflation Labor market participation Unemployment by duration Unemployment by race and ethnicity AAII03102023 closer03102023 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
