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U.S. major indexes volatile: Nasdaq up most, Dow flat
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Banks under massive selling pressure after three failures
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Among S&P sectors, financials falls most, utilities lead
gainers
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Dollar lower; crude down ~2%; gold up ~2%; BTC= up ~20%
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U.S. 10-Year Treasury yield collapses to ~3.53%
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S&P 500 INDEX BOUNCES OFF SUPPORT (1253 EDT/1653 GMT) The S&P 500 tested support early in the session. The benchmark index has since bounced, and is now posting a modest rise on the day:
The SPX hit a low of 3,808.86. With this, it tested the 38.2% Fibonacci retracement of the March 2020-January 2022 advance at 3,815.20. This level proved to be resilient in May of last year and again in late December into early January of this year. After hitting its low in the first 10 minutes or so of Monday's session, the S&P 500 snapped higher, and is attempting to reclaim a broken resistance line from the January 2022 high which presents a hurdle around 3,890. The SPX, after registering an intraday high for the session so far of 3,905.05, is now around 3,875, putting it back below this hurdle. Additional resistance is at the March 2 low at 3,928.18 and the 200-day moving average, now around 3,940. Meanwhile, after falling ~14%, the SPDR S&P 500 Banks ETF is now off ~8.5% while the SPDR S&P regional banking ETF was down ~10% after earlier falling >17%.
(Terence Gabriel)
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TOO LATE TO MEND, EVEN IF THE FED HITS A U-TURN?(1205
EDT/1605 GMT)
The sudden collapse of SVB Financial Group and the
failure of two other banks this week has taken global financial
markets by the throat, has left analysts saying that even a
pause button by the Federal Reserve on its aggressive monetary
policy tightening may not be enough to salvage the economy.
"Fed policy is starting to bite, and it's unlikely to
reverse even if the Fed were to pause its rate hikes or
quantitative tightening- the die is cast for further earnings
disappointments," Morgan Stanley analysts pointed.
SVB, a startup-focused lender became the largest bank to
fail since the 2008 financial crisis on Friday, leaving billions
of dollars belonging to companies and investors stranded, while
regulators also closed New York-based Signature Bank over the weekend. This followed crypto-bank Silvergate's
announcement days before that it would have to wind down.
Higher interest rates have been seen as a win for banks
because of the boost to net interest margins, but coupled with
slower economic growth, higher rates can also trigger loan
losses, AJ Bell's investment director Russ Mould said.
In particular, B Riley Wealth's Art Hogan warned that the
SVB fallout implies risks to the balance sheets of regional
banks from the higher rate regime.
Hogan pointed that the market's main focus is to examine the
whole group regional banks group closely to determine the ones
with most negative exposure.
Stocks across the entire financial sector were falling on Monday. Charles Schwab Corp shares were down 9% after it reported quarterly results. Zions Bancorp was down 20%. KeyCorp was down 22%. Comerica Inc was down 21% and Truist Financial Corp was off ~13% while and Fifth Third Bancorp was down ~16%. First Republic Bank was halted multiple times for volatility with the stock last down more than 60% as news of fresh financing failed to reassure investors. The stock had already lost 33% of its value last week. While the Fed's intervention to backstop all uninsured deposits could help prevent any further bank runs, the bigger picture of slowing growth remains intact, Morgan Stanley analysts noted. The cost to banks of keeping deposits are likely to be under more pressure after already being on the rise for months, they added.
(Ankika Biswas)
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FED FUNDS/TWO-YEAR YIELD INVERSION REFLECTS CLOUDY FED
OUTLOOK (1050 EDT/1450 GMT)
The dramatic drop in U.S. Treasury yields as investors seek
out safe havens in the aftermath of three U.S. bank failures in
the last few days has inverted the curve between the fed funds
rate and two-year Treasury yields and clouded the outlook for
Federal Reserve policy.
Two-year yields dropped as low as 4.00% on Monday
and are down from a more-than-15-year high of 5.08% last
Wednesday. They are now trading 57 basis points below the fed
funds rate at 4.57%.
Such a move “has historically marked the end of the
post-hiking Fed pause; certainly not a dynamic consistent with a
Fed poised to deliver several more hikes before arriving at
terminal,” Ian Lyngen and Benjamin Jeffery, interest rate
strategists at BMO Capital Markets, said in a note on Monday.
Fed funds futures traders now see the Fed as equally likely
to leave rates unchanged or hike rates by 25 basis points at its
March 21-22 meeting, after pricing for a 50 basis points rate
increase just last week. Traders also again expect rate cuts in
the second half of the year, with the fed funds rate expected to
fall to 4.06% in December. Fed Chairman Jerome Powell said last week that the U.S.
central bank might reaccelerate the pace of rate hikes as it
battles still high inflation and benefits from a still strong
employment picture.
“The most relevant question of the moment is whether the
banking sector stresses are enough to prevent Powell from hiking
next week. The Fed has previously been clear in the stance that
investors should anticipate fallout from the cumulative
tightening of financial conditions and, despite the solid start
to 2023 for the real economy, the path to a soft (or even no)
landing was comparatively narrow,” BMO said.
However, “the simple fact the damage has hit the banking
sector complicates the calculus for the Fed. Said differently,
in the event the Fed pauses, it will be due to the potential for
broad-based banking contagion,” they added.
Bank shares tumbled on Monday as the United States' move to
guarantee the deposits of the collapsed tech-focused lender
Silicon Valley Bank failed to reassure investors that other
banks remain financially sound.
(Karen Brettell)
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BANKS LEAD DECLINES AS INVESTORS FLEE AFTER THREE FAILURES (1010 EDT/1410 GMT) Wall Street's major averages were gyrating around flat early on Monday after a third U.S. bank failed over the weekend and investors sold off bank stocks as they worried whether more weakness would be uncovered in the financial system.
State regulators closed New York-based Signature Bank on Sunday, two days after California authorities shuttered Silicon Valley Bank, owned by SVB Financial and Silvergate Capital's announcement on Wednesday that it would have to wind downits operations. With concern spreading after the closures, U.S. President Biden tried to reassure the public saying the administration's actions to help depositors in SVB and Signature should give Americans confidence that the banking system is safe. "Things are moving at warp speed. The market seems to think there is going to be more stress. The question is at what point do they become self-fulfilling? When you start seeing lines outside of banks," said Christopher Mcgratty, head of U.S. bank research at Keefe, Bruyette & Woods in New York
"I've seen this narrative play out in 2008 and markets can be unwound fairly quickly."
While the S&P 500 was down 0.3% the benchmark's bank index tumbled 7.3% with the biggest decliner First Republic Bank , which was down 74.3% after already losing 33% of its value last week. The best performer in the index was JPMorgan which was down 0.9%.
Regional banks were bing hit hardest with the KBW regional bank index down 11.2%. If there was any consolation to be had it was that traders were pulling back expectations for Federal Reserve rate hikes. Here is a snapshot of indexes at 1006 AM EST:
(Sinéad Carew, Medha Singh)
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BANK BLOODBATH: WILL THIS BE THE VOLATILITY EVENT? (0845
EDT/1245 GMT)
U.S. equity index futures are in negative territory on
Monday in volatile trade.
At one, point, e-mini S&P 500 futures were up about
2%. However, that rise has evaporated, and the futures are now
off around 1%. Bank shares remain under pressure. The SPDR S&P
Bank ETF is quoted down around 6%.
With this, the U.S. 10-Year Treasury yield is
collapsing, and the CBOE market volatility index is
jumping back to the 30.00 area, hitting its highest level since
October 24.
Since peaking early on in the bear market at 38.94 in late
January of last year, the market's "fear gauge" has consistently
made lower highs:
Many market watchers have been looking for a volatility
event leading to capitulation to call a market bottom, and
perhaps rightly so. With this, they are expecting a wild spike
higher in the VIX, to extreme levels, to signal the end of the
decline.
Of note, however, the pattern which is already in place of
lower VIX highs against lower SPX lows can also potentially fit
with a bottoming process.
Looking back from 1996 to 2020, on an intraday basis, there
were 12 major S&P 500 declines: six corrections (-10% to -20%)
and six bear markets (-20%+). In only four of those instances
(33% of the time), did the day of the VIX intraday high coincide
with the day of the S&P 500 intraday low. In other words, in a
sign of complete capitulation, the VIX topped the same day the
SPX hit its low.
In eight instances (67% of the time), the VIX intraday high
occurred ahead of the S&P 500's intraday low. In fact, on
average, on the day of the SPX's ultimate low, the VIX high that
day was around 86% of its highest print seen for the decline.
Additionally, in terms of time, on average, the high in the
VIX occurred around 77% of the way through the decline.
Therefore, one could argue that more often than not, the SPX
bottomed past the point of "maximum fear," when the market was
gripped with a sense of "despair."
Admittedly, the current decline from a record high has only
produced a maximum VIX intraday high of 38.94, which is well
below the average maximum high of about 51 in prior declines.
Thus, there still might be a crescendo of panic ahead.
(Terence Gabriel)
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FOR MONDAY'S LIVE MARKETS POSTS PRIOR TO 0845 EDT/1245 GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
