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Main U.S. indexes rise: DJI ends up >1%
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All S&P 500 sectors finish green: energy out front
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Dollar, gold decline; crude up >1%, bitcoin up ~4%
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U.S. 10-Year Treasury yield rises to ~3.49%
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U.S. STOCKS TRY TO LOOK PAST THE BANKING CRISIS (1601 EDT/2001 GMT) The main U.S. indexes rose on Monday after a deal to rescue Credit Suisse and central bank efforts to bolster confidence in the financial system, while investors also weighed the likelihood of a pause in rate hikes from the Federal Reserve this week. With this, the S&P 500 banks index rose 0.6%, while the KBW regional banking index rallied 1.5%. That said, a focus remains First Republic Bank , which lost nearly half its value on reports that JP Morgan is advising the company on a potential capital raise. In any event, all S&P 500 sectors rose with energy posting the biggest rise. NYMEX crude futures are up more than 1%, though they continue to find their 200-week moving average (WMA), now around $66.20, to be a sticky level. The last weekly close below the 200-WMA was in late-January 2021. Tech was the laggard, gaining just over 0.2%. Nevertheless, S&P 500 growth continued its record run relative to S&P 500 value . The IGX/IVX ratio eked out a gain, and rose for a 12th-straight session. Here is where markets stood just moments after the 4:00 PM EDT close:
(Terence Gabriel)
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GROWTH ON A RECORD RUN VS VALUE (1330 EDT/1730 GMT)
S&P 500 Growth has been on a record winning run vs
S&P 500 Value . That said, with Monday's action, that win
streak is at risk of ending.
Through Friday's close, the growth/value ratio rose
11-straight trading days. That's the longest streak of growth
outperforming value in history using Refinitv data back to
mid-1995.
This, as there has been a silver tech lining in the bank
crisis cloud - click here
Of note, on Monday, tech , the biggest
concentration in the SPDR Growth ETF at the end of
February, is around flat, while financials , the largest
exposure in the SPDR Value ETF as of the end of
February, is among better performing groups.
That said, in afternoon trade, the ratio is now edging down
just slightly, and whether or not it rises for a 12th-straight
session may come down to the wire.
Admittedly, what defines growth and value have recently
became blurred compared with what had been in case for many
years - click here.
Nevertheless, the growth/value ratio has broken out above a
resistance line from its high, suggesting this recent turn in
favor of growth may ultimately have legs:
However, the descending 200-day moving average presents
another hurdle.
(Terence Gabriel)
*****
TO PAUSE, OR NOT TO PAUSE, THAT IS THE QUESTION (1215 EDT/1715 GMT) On Wednesday the Federal Reserve will make their next interest rate decision.
According to Philip Palumbo, founder, CEO and chief investment officer at Palumbo Wealth Management, recent gyrations in Fed rate hike probabilities show that the bond market seems to be as confused as everyone else.
That said, at the moment, the CME's FedWatch Tool is showing around an 80% chance that the Fed raises rates by 25 basis points at the conclusion of the March 21-22 FOMC meeting. There is around a 20% chance for no change, or a pause, in the rate hiking cycle.
As Palumbo sees it, here's what the Fed confronts as they make the decision.
The argument for no increase: The SVB and Signature Bank failures pressure regional banks and will tighten lending conditions and make capital scarce. Palumbo says that this is doing the Fed’s work for them, so rate increases might not be as necessary as believed. Additionally, he says that the SVB failure is the result of the rapid rate increases. Raising interest rates again only makes that situation worse. The argument for hiking 25 basis points: Inflation is still elevated and still must be addressed. An early pause calls the Fed’s inflation fighting credibility into question. Palumbo adds that an early pause could give the impression that there is something worse going on that we don’t yet know about. "Our best guess is a hybrid scenario – a ‘pause without a pause.’"
In other words, Palumbo expects no rate increase, "but the Fed will provide guidance that says more increases are in the cards down the road and this pause is just to allow markets to settle down."
(Terence Gabriel)
*****
WHILE MOST BIG U.S. BANKS REBOUND, INVESTORS SELL FIRST REPUBLIC (1148 EDT/1548 GMT) Wall Street's biggest banks started the week on a positive note following an announcement by Swiss authorities on Sunday that UBS agreed to buy battered rival Credit Suisse with an aim to restoring confidence in the banking system after some U.S. bank collapses had shaken investors nerves globally. The S&P 500 banks index was up 2.1%. Its biggest percentage gainers include Fifth Third Bancorp , up 7.7% and Comerica up 3.6%.
The largest U.S. banks, known as universal banks, including Citigroup , JPMorgan and Bank of America are all up, albeit more modestly at >1%.
Keefe, Bruyette & Woods analyst David Konrad wrote in a research note dated for Sunday that the UBS/CS deal is good news for the biggest U.S. universal banks as it should ease concerns about potential counter-party exposure from CS.
That said, the analyst still expects continued volatility in U.S. bank stocks due to ongoing liquidity concerns since the Silicon Valley Bank and Signature Bank failures.
But somewhat reassuringly, Konrad said he does not believe that the CS issues imply a global financial crisis or weakness in global bank fundamentals. With all this in mind, First Republic stuck out like a sore thumb on Monday with a 17.8% decline. A New York Times report late Friday that it is in talks to raise capital from other banks or private equity firms by issuing new shares is fanning worries about its liquidity even after a $30 billion rescue from 11 big banks last week. On Friday morning, KBW analyst Christopher McGratty had written that FRC's rescue was not a permanent solution because of a surge in borrowing by the bank at the same time as significant deposit outflows. While the analyst said he did not have spot details on deposits or borrowing, he suggested that "an upside-down funding base is unsustainable."
McGratty said "the changes in FRC's balance sheet in just one week are staggering." And adding in that its dividend suspension "paints a very dire outlook for the company and shareholders," according to McGratty. On the positive side, McGratty upgraded New York Community Bancorp Inc to outperform from market perform and gave it a $10.50 Price target. NYCB is up 33.9% at $8.76 after a unit of the bank agreed to buy deposits and loans from New York-based Signature Bank, which was shuttered a week ago. McGratty said this suggests a massive 70% accretion to the company's EPS.
Here is a snapshot of SPXBK U.S. banks at 1143 EDT:
(Sinéad Carew)
*****
BE REASSURED: THE EU IS NOT SWITZERLAND (1120 EDT/1520 GMT) Credit Suisse shares are still down nearly 60% on Monday, but the mood in markets has seen quite a turn -- for the better. Investors were thrown into deep angst this weekend after it became clear that the Swiss rescue package would see $17 billion worth of Credit Suisse's AT1 bonds being wiped off, whereas shareholders in the bank recover around $3 billion. Debt typically outranks equity in failures, so that was a nasty surprise that left investors dealing with the doubt over whether that structure could apply outside Switzerland. The overall AT1 market is estimated at $225 billion, per Citi.
Switzerland "has certainly surprised with the overnight change in law and breaking Capital Structure seniority. This has never happened and it's clearly a very unfortunate Policy Mistake," said Davide Serra, CEO at Algebris Investments. But after a tense two hours of European trading on Monday, European supervisors -- ECB Banking Supervision, SRB and EBA -- weighed in to dispel doubts. Their release drove an AT1 ETF off lows and eased pressure on bank stocks . "As a result of the release, we understand that the market has turned to well bid from bidless," BofA wrote to clients, according to a trader. The statement in question read: "Common equity instruments are the first ones to absorb losses... This approach has been consistently applied in past cases and will continue to guide the actions" in crisis interventions. Hence relief in markets.
"The European authorities are clearly differentiating European AT1 from Swiss AT1," added BofA. And Algebris' Serra said: "We do not think there will be long-term structural impact on AT1s in Europe, outside of Switzerland."
(Danilo Masoni)
*****
MIRROR IMAGE (1005 EDT/1405 GMT) The Dow Industrials and S&P 500 are higher in early trade, while the Nasdaq is modestly underwater in early U.S. trade on Monday, although trading has been choppy, as stocks look for some stability in the wake of the deal by UBS to buy Credit Suisse on Sunday.
In a mirror images of last week's action, bank shares jumped, with the S&P 500 banks index up nearly 2% while large-cap growth names are under some pressure. The S&P financial sector is among the best performing groups, while tech and communication services are lagging.
Still, worries continue to swirl around the banking sector, with First Republic down more than 15% after a report the regional bank could raise more money fanned worries about its liquidity despite a $30 billion rescue last week. In addition, concerns about the banks have fueled uncertainly about the effect it will have on the Federal Reserve's policy announcement on Wednesday and whether the central bank will continue to raise rates or not. Below is your market snapshot:
(Chuck Mikolajczak)
*****
WHEN CRISIS IS HERE! CRYPTO TO BE IN TOP GEAR (0912 EDT/1312 GMT)
The global banking stress has rattled most asset classes from equities to bonds, but has given a new lease on life to the cryptocurrency space, paving a way for its redemption post the FTX saga, says Bernstein. So far this year, crypto is the best performing asset class in 2023 with bitcoin, the biggest cryptocurrency jumping nearly 71% compared to a meager 2% return for the benchmark S&P 500 index . Similarly, ether, the second biggest cryptocurrency, has offered returns close to ~50% so far this year. "Fundamental shift is that crypto is now trading as a risk-off, uncorrelated asset and the last 2 years prior to FTX' demise, was more an aberration as a risk-on asset," says Bernstein.
Bitcoin is hovering near a nine-month high on Monday as
turmoil in the banking sector is driving some investors to turn
to digital assets. The cryptocurrency is building on its best
week in four years.
Crypto has strong survival instincts amidst wider economic
uncertainty, with bitcoin having no history of two consecutive
years of negative returns, the brokerage said, which could
provide a safe house for investors if the current banking crisis
continues.
Bitcoin fell about 64.2% in 2022 as some high profile
firms went under.
(Siddarth S)
*****
U.S. STOCK FUTURES "SPRING" OFF PREMARKET LOWS (0858 EDT/1258 GMT) It has been said that history doesn't repeat itself, but it often rhymes.
In this regard, it hasn't been lost on traders that last Thursday's big-bank lifeline to First Republic came 15 years to the day that Bear Stearns was sold to JP Morgan. And in another coincidence, traders also note that the last name of Credit Suisse's chairman is Lehmann. Not exactly Lehman, but pretty darn close. In any event, the shadow of the bear continues to loom large, especially given the recent banking sector turmoil. From its February 2 high to its March 13 low, the S&P 500 index lost about 9%. It has since clawed its way off the low, but ended Friday still down just over 6% from the early-February high. That said, with the arrival of the spring equinox in the Northern Hemisphere this week, traders will be watching closely to see if the veil of darkness lifts, or if a flurry of darker days lies ahead. Proponents of Gann Theory, or methods of technical analysis developed by W.D. Gann, as well as other traders with an astro-focus, may look for either an acceleration of the prevailing trend, or a reversal, around the summer and winter solstices, as well as the fall and spring equinoxes. Just looking back over the past five years or so, a number of major reversals in the S&P 500 have developed around these potential turn dates:
The 2023 spring equinox occurs on Monday, March 20 at 5:24 PM EDT. Thus, it remains to be seen if last Monday's low came under the equinox's orb of influence, and the SPX will continue to recover, or if instead, volatility will only increase and potentially lead to fresh lows, or indeed, a sustained downside slide. Action over the next week or so may provide clarity. So far, the SPX has held the 3,815-3,810 support zone on a closing basis. Last Monday, it fell to 3,808.86 before snapping back. Early on Monday, the futures slid about 1.3% as steps taken by central banks to boost liquidity and a deal to rescue Credit Suisse failed to quell investor worries of severe turbulence in the banking sector. However, the futures have since reversed, and are now in positive territory.
(Terence Gabriel)
*****
FOR MONDAY'S LIVE MARKETS POSTS PRIOR TO 0858 EDT/1258 GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
