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Major U.S. indexes end green: Nasdaq up ~1.6%
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Energy leads S&P 500 sector gainers; utilities weakest
group
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S&P Banks index up ~3.6%, KBW regional bank index up ~5%
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Dollar edges down; crude up >2.5%, bitcoin gains; gold down ~2%
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U.S. 10-Year Treasury yield rises to ~3.60%
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U.S. STOCKS RALLY IN THE FACE OF A COMING FED STATEMENT (1605 EDT/2005 GMT) Major U.S. averages climbed for a second-straight day on Tuesday, as easing worries about a possible banking crisis waned ahead of a policy announcement by the Fed on Wednesday.
The Dow and S&P 500 have now notched their biggest two-day percentage gains since the start of the month as bank shares have rallied more than 4% over the same time frame. The banks got an additional boost on Tuesday from badly battered First Republic Bank which surged nearly 30% after Reuters reported the company is looking at downsizing options should new attempts to raise capital fall flat.
Also providing a boost on Tuesday were gains in the energy sector , as crude prices were buoyed by a softer dollar and easing concerns a wider bank crisis that could have cut demand has been avoided.
After swings over the past two weeks as the bank crisis escalated, the market is now widely pricing in a 25 basis point hike by the Fed on Wednesday, according to CME's FedWatch Tool, with an outside chance of no hike at all by the central bank.
Below is your market snapshot:
(Chuck Mikolajczak)
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THE BANKS ARE OVERSOLD, BUT BUYER BEWARE (1330 EDT/1730 GMT)
While much of the attention in recent weeks has rightfully been focused on the banks and the related selling pressure as contagion fears mounted, Nicholas Colas, co-founder of DataTrek Research, has widened the lens a bit in a note that looks at their longer-term weakness.
Since the end of 2019, the S&P 500 had risen slightly more than 22% through Monday's close, while the regional banks as measured by the SPDR ETF lost more than 25% and the SPDR S&P Bank ETF nearly 24%, which Colas said implies the earnings power of the industry has been "deeply eroded" even before the Covid-19 pandemic.
However, Colas notes this may be a difficult thesis to support, since the dividend payouts of the KBE rose by 22.3% over that period, and 14.5% for the KRE. As both of the ETFs pass through the dividends paid by the single stock holdings, Colas said they are reasonable proxies for the cash shareholder payouts that were made by publicly held U.S. banks.
As such, even if major U.S. banks are forced to cut their dividends by 15%-20% following this year's Stress Tests and the Comprehensive Capital Analysis and Review (CCAR) process, that still puts the payouts only back to 2019 levels, according to Colas.
This disparity shows that "fundamentals alone do not adequately explain the current turmoil in US bank stocks, which leaves us to conclude that the market is primarily concerned about systemic risk," said Colas.
However, while this may indicate the banks are cheap, the pressure on the banks as a result of the systemic risk is coming from multiple directions. These include the headline risk of more bank failures or forced mergers, the increasing focus on commercial real estate loans by smaller banks as occupancy rates and business activity struggles to return to pre-pandemic levels in major cities and finally, interest rate uncertainty. And as Colas notes, "none of these problems have easy, quick solutions."
(Chuck Mikolajczak)
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DIG INTO INDUSTRIALS -CARSON GROUP (1215 EDT/1615 GMT) The market has been consumed with banking sector woes, but the Carson Group (CG) is taking a breather from that focus, and instead taking a look at the industrials sector. Carson Group is overweight industrials due to a combination of favorable economic and fiscal policies, solid fundamentals, and reasonable valuations. Last year, CG says industrials outperformed, falling just 5.5% vs a 18.1% decline in the total return for the S&P 500 . And now, they think industrials are primed to continue performing well over coming years. According to Carson Group, demand has rebounded strongly since the pandemic, and supply chain bottlenecks appear to be lifting.
"This, coupled with the movement to re-shore manufacturing, favorable fiscal policies like the 2021 Infrastructure Investment and Jobs Act, and rising military budgets from the Russia/Ukraine war, bodes well for future growth." Carson Investment Research's bottom line is that industrials should benefit from continued healthy economic growth, constructive commodity prices, rising defense spending, and favorable government programs that are encouraging re-shoring manufacturing back to the U.S.
"Valuations aren’t demanding, especially considering the expectations for double-digit growth in earnings and free cash flow over the next three years."
(Terence Gabriel)
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HOUSE WARMING: EXISTING HOME SALES SNAP 12-MONTH LOSING STREAK (1055 EDT/1455 GMT) It would appear that the housing market, having descended to its dank basement, has found the rickety stair way leading up to ground level.
Sales of pre-owned U.S. homes surged by 14.5% last month to 4.58 million units at a seasonally adjusted annualized rate, marking a robust bounce after 12 consecutive months of declines. The report from the National Association of Realtors (NAR) blew past the 5% consensus and landed 9% above the 4.20 million units SAAR analysts anticipated. It was the largest monthly increase since July 2020, when a pandemic-driven flight to the suburbs was causing the housing market to explode. Inventories landed at 2.6 months supply, down 10.3% from January but an improvement over the 1.7-month reading from a year ago. "Inventories are higher and prices are lower from record lows recorded last year," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "An easing of mortgage rates ... could provide support to home sales." "But affordability remains a key constraint for buyers." Recent upticks in mortgage demand and homebuilder sentiment, along with unexpected increases in housing starts and building permits, have hinted that the sector - battered by depressed inventories, skyrocketing prices and rising interest rates - might have found its basement. "Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines," writes Lawrence Yun, chief economist at NAR. "Moreover, we're seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs."
But while housing indicators look in the rear view mirror, the stock market looks down the road, to where investors expect the sector to be six months to a year from now. While the Philadelphia SE Housing index and the S&P 1500 Home Building index underperformed the broader market for much of 2022, when rebased to twelve months ago against the S&P 500 that relationship started to diverge in November:
Wall Street is in a generally good mood, with all three major U.S. stock indexes comfortably green, albeit off early session highs. Energy and financial stocks are leading the way, with banks in particular having a grand time continuing Monday's rebound, jumping nearly 4%.
(Stephen Culp)
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U.S. STOCKS RALLY IN EARLY TRADE WITH FED EYED (1008
EDT/1408 GMT)
Major U.S. averages are showing solid gains in the early
portion of trading on Tuesday, with the S&P 500 and
Nasdaq Composite up around 1%, while the Dow Industrials are not far behind as concerns about banks waned and the
focus begins to turn to the Fed policy announcement tomorrow.
Equities rallied to
start the week as the weekend deal to rescue Credit Suisse and moves by central banks to bolster the financial system helped ease recent fears about contagion.
The S&P 500 banks index is up about 4% and on pace for its biggest one-day percentage gain since November 10. The index had plunged more than 21% over the prior two weeks as worries about the stability of the banking system grew. The KBW Regional Bank index is also up about 4% and on track for its biggest one-day percentage gain since October 4.
The concerns about the banks threw expectations about the Fed's policy announcement into flux. After expectations were trending toward a 50 basis point hike before the bank fears surfaced, expectations for a 25 basis point hike now stand at over 80%, according to CME's Fedwatch Tool, while many major banks made last minute adjustments to their Fed forecasts.
On the economic front, data showed existing home sales increased for the first time since January 2022.
Below is your market snapshot:
(Chuck Mikolajczak)
*****
NYCB'S DEAL FOR SIGNATURE BANKS ASSETS: NOTHING TO LOSE (0915 EDT/1315 GMT) New York Community Bancorp's move to buy deposits and loans from doomed Signature Bank is largely being perceived as a win, with analysts noting that it could boost NYCB's earnings.
"We believe the stock's very favorable response to the transaction captures the estimated financial benefits of the transaction," analysts at JP Morgan said. Shares of New York Community Bancorp have climbed nearly 32% since the deal was announced on Monday, bucking the gloomy trend that was triggered by the collapse of some U.S. midsized lenders last week. NYCB is up 7.3% to $9.24 in premarket trade. Shares of PacWest Bancorp are up 12.5% premarket, while First Republic Bank is jumping 26.7% after fears over the regional lender's health pushed its stock to an all-time low in the previous session. Post the deal, JP Morgan has hiked its fiscal 2023 and 2024 EPS view for NYCB by 19.5% and 29.8%, respectively.
NYCB, which had a significant amount of higher-cost wholesale borrowings in the fourth quarter of last year, "will use the acquired cash to greatly reduce higher-cost wholesale borrowings," said Credit Suisse analysts.
"We believe the ongoing integration of Flagstar Bancorp and the now assumed Signature operations remains critical. Minimizing client and employee attrition, particularly from Signature, will be critical to achieving the longer term financial benefits of the transaction," said RBC analysts. Ratings agency Fitch also said that the bank's ratings would be unaffected by the purchase of the portion of Signature Bank.
Amid the stress brought on by the recent banking crisis and rising interest rates, the acquisition adds to some relief that UBS Group AG's takeover of the troubled Credit Suisse Group AG would avert a wider banking crisis.
(Tejaswi Marthi)
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NASDAQ COMPOSITE: PINCHED IN (0900 EDT/300 GMT) The Nasdaq Composite has been leading the way higher in 2023. The tech-heavy index is up nearly 12% so far this year vs about a 3% rise for the S&P 500 index . Of note, however, for most of this year, the IXIC has been trapped between two converging Fibonacci-based moving averages on the weekly charts:
Indeed, since reclaiming its rising 233-week moving average (WMA) on a weekly closing basis on January 13, the Composite has been using it as support.
Last week, amid intense market stress, the IXIC hit a low of 10,982, which put it just around 15 points above its 233-WMA. The Composite then vaulted higher. With Monday's 11,675 finish, the index is up more than 6% off last week's low. However, on the upside the IXIC is just shy of its descending 55-WMA, which is now resistance around 11,730. Since ending the week below the 55-WMA on January 21, 2022, the IXIC has managed only one weekly close back above it. On February 3 of this year, it ended above it by less than 10 points. Thus, with these two moving averages pinching together, traders will be watching for what appears to be any more decisive weekly closing penetration of the 55-WMA, or weekly closing violation of the 233-WMA. Above the 55-WMA, additional hurdles are in the 12,250-12,270 area, while below the 233-WMA, support resides in the 10,291-10088 area.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
