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Dow, S&P dip; Nasdaq manages gain, chips and Dow
transports up
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Tech is sole gainer among S&P sectors, financials fall
most
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Euro STOXX 600 index off ~1%
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Dollar slips; crude down, gold up >1%; bitcoin up ~7%
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U.S. 10-Year Treasury yield slides to ~3.45%
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FED BALANCE SHEET JUMP RAISES QUESTIONS FOR QT (0940 EDT/1340 GMT) The Federal Reserve’s balance sheet jumped by around $300 billion in the latest week as banks rushed to shore up cash balances, raising questions on whether the U.S. central bank will be able to continue its quantitative tightening (QT) program. The Fed began letting bonds roll off its balance sheet last June as part of its process to normalize monetary conditions, but the latest week’s expansion has now undone a large portion of this tightening. The Fed’s balance sheet peaked at $8.965 trillion in April 2022, and fell as low as $8.340 trillion on March 1, before rising back to now stand at $8.639 trillion. The Fed injected $440 billion in bank reserves in the latest week, which reverses a third of the $1.3 trillion of the tightening in bank reserves that has occurred since the end of 2021, JPMorgan analysts including Nikolaos Panigirtzoglou said in a note.
With the backdrop of elevated banking system liquidity or reserve needs, "this naturally raises the question whether the Fed can continue QT, similar to 2018/2019,” they said. The Fed had to inject additional reserves into the banking system in 2019 after it pared its balance sheet too far, causing a spike in the cost of borrowing in the repurchase agreement (repo) market as banks scrambled for cash.
(Karen Brettell)
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INDIVIDUAL INVESTOR BULLS RUN FOR THE HILLS -AAII (0900 EDT/1300 GMT) Optimism among individual investors fell to a six-month low in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, bearish sentiment jumped, while neutral sentiment slipped.
AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, dropped 5.6 percentage points to 19.2%. Optimism was last lower on September 22, 2022 (17.7%).
Bullish sentiment is at an "unusually low level for the fourth consecutive week and the 44th time out of the past 63 weeks." Bullish sentiment is also below its historical average of 37.5% for the 67th time out of the past 69 weeks.
Bearish sentiment, or expectations that stock prices will fall over the next six months, increased 6.7 percentage points to 48.4%. Pessimism was last higher on December 22, 2022 (52.3%).
"This is the third consecutive week and the 42nd time out of the past 63 weeks that bearish sentiment is at an unusually high level." Bearish sentiment is also above its historical average of 31.0% for the 64th time out of the past 69 weeks. Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, dipped by 1.0 percentage point to 32.4%. At 11 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%. With these changes, the bull-bear spread widened to -29.2 percentage points from -16.9 percentage points last week. The spread remains "unusually low for the fourth consecutive week" and is at an "unusually low level for the 46th time out of the past 63 weeks":
AAII noted this week’s bullish sentiment reading is the 34th lowest since the Sentiment Survey started in July 1987.
Additionally, the survey period included the Silicon Valley Bank and Signature Bank failures, as well as recent headlines surrounding Credit Suisse. "These banking issues notwithstanding, 12 of the survey’s 50 lowest bullish sentiment readings have been recorded during the current reflation bear market."
AAII added that "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.
"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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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
