Dow Jones futures fell slightly overnight, as did S&P 500 and Nasdaq futures ahead of Friday’s February jobs report. SVB Financial continued to fall after triggering a sell-off in bank stocks that hit the broader market on Thursday.
Oracle (ORCL) and Ultimate Beauty (ULTA) reported its income late.
The stock market rally reversed sharply lower on Thursday as questions about banks’ finances suddenly came to the fore. The S&P 500 and Nasdaq fell to critical support levels.
Bank stocks plunged as SVB Financial (SIVB), parent company of Silicon Valley Bank, cratered on a series of negative headlines as a long-struggling crypto bank Silvergate Capital (SI) said it was going to close. Bank of America (BAC), JPMorgan Chase (JMP), Wells Fargo (WFC) and Charles Schwab (SCHW) were among the big losers.
SIVB stock continued a late plunge as fears of a bank run grew.
Investors should be cautious, waiting for the market rally to show renewed strength.
ORCL stock fell 4% in late trading after Oracle earnings topped, but revenue was lower. Oracle stock slipped 5.9% to 81.75 on Thursday, falling below its 50-day line. The stock traded on a buy point of 91.32 from a deep cup base with handle.
ULTA stock fell 2% in extended action. Ulta Beauty revenue and revenue topped views, but same store forecasts were light. The beauty retail giant fell 0.8% to 519.93 on Thursday, just below its 21-day line. ULTA stock has no clear buy point.
Report on the work
The Department of Labor will release the February jobs report at 8:30 a.m. ET. Economists expect nonfarm payrolls to rise by 223,000, a significant slowdown from January’s 517,000, but it would still be a strong start to the year for two months. The unemployment rate is expected to remain at 3.4%, its lowest level in 53 years. The average hourly wage should climb by 0.3%, but the annual wage gain should accelerate to 4.7%.
On Thursday, Labor announced that initial jobless claims rose more than expected to their highest level since December. Challenger, Gray & Christmas reported that the announced layoff plans are the highest to start a year since 2009.
February’s jobs report, as well as next week’s CPI inflation report, could lock in expectations of a half-point rate hike on March 22.
Dow Jones Futures Today
Dow Jones futures fell 0.4% from fair value. S&P 500 futures slid 0.5% and Nasdaq 100 futures fell 0.5%.
The 10-year Treasury yield fell 4 basis points to 3.88%. The 2-year yield fell 9 basis points to 4.81%.
The February jobs report is sure to rock Dow Jones futures, Treasury yields and Fed rate hike expectations.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
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Stock market rally
The stock market rally got off to a good start on Thursday due to rising jobless claims, but quickly reversed due to bank concerns. Major indices steadily deteriorated, closing near session lows.
The Dow Jones Industrial Average fell 1.7% in stock trading Thursday. The S&P 500 index fell 1.85%, with SIVB stock, Bank of the First Republic (FRC) and Schwab the biggest losers. The Nasdaq composite slipped 2.05%. The small-cap Russell 2000, which has many financial components, plunged 2.8%.
U.S. crude oil prices fell 1.2% to $75.72 a barrel.
The 10-year Treasury yield fell 5 basis points to 3.92%. The two-year Treasury yield plunged 16 basis points to 4.9%, while the six-month Treasury yield fell 3 basis points to 5.28%.
Fed rate hike expectations have not budged much.
Markets see a 64% chance of a 50 basis point move on March 22, down from 78.6% on Wednesday. The odds jumped about 30% ahead of Fed Chief Jerome Powell’s hawkish testimony on Tuesday. Markets are now pricing in 100 basis points of rate hikes over the next three Fed meetings, with a decent chance of more later in the year.
SIVB stock fell 60% to 106.04, the lowest price since 2016. SVB Financial announced a $1.75 billion share sale late on Wednesday. Silicon Valley Bank’s parent company also cut its forecast. Deposits are falling due to startups facing a shortage of funding. SVB’s loans to the tech industry are also of serious concern.
SIVB stock plunged 22% overnight in volatile and heavy trading. Peter Thiel’s Founders Fund is advising companies to withdraw money from Silicon Valley Bank, Bloomberg reported. SVB Financial has yet to price this share offering.
Silvergate Capital, which has been in free fall for months, announced its closure on Wednesday evening, along with the liquidation of its Silvergate Bank. SI stock plunged 42%.
News from SVB and Silvergate slammed financials, already under pressure as the hugely inverted yield curve upends the traditional borrow short/lend long strategy.
Key Corp (KEY), which had warned about net interest margins earlier in the week, fell 7.2% on Thursday. Western Alliance Bancorp (WAL) fell nearly 13% and FRC stock plunged 16.5%.
JPM stock slipped 5.4%. On Tuesday, JPMorgan fell below a buy point of 138.76 and its 50-day line. BAC shares fell 6.2% to their lowest levels since October. WFC stock also lost 6.2%, falling below its 200-day line after falling below its 50-day line earlier in the week.
SCHW stock plunged 12.8%, dropping below the 200-day line and its base low. JPMorgan has offered a block sale of 8.5 million Schwab shares, Bloomberg reported. SCHW stock is at its worst level since October.
Investors will take a closer look at banks’ books and capital levels, which hasn’t been a real concern so far. Banks are dramatically raising deposit and CD rates, while long-term rates are lagging. Many banks are sitting on large unrealized losses on loans and other securities.
If banks restrict lending, it could quickly chill the economy. Meanwhile, the woes of SVB Financial and Silvergate Capital are raising concerns about their tech and crypto clienteles.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.1%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.3%, with ORCL stock a large component of the IGV. ETF VanEck Vectors Semiconductor (SMH) lost 1.9%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 4.2% and ARK Genomics ETF (ARKG) fell 3.8%.
The SPDR S&P Metals & Mining ETF (XME) lost 2.6% and the Global X US Infrastructure Development ETF (PAVE) 2.2%. The US Global Jets ETF (JETS) fell 3.1%. SPDR S&P Homebuilders ETF (XHB) dropped 1.6%. The Energy Select SPDR ETF (XLE) was down 1.4% and the Health Care Select Sector SPDR Fund (XLV) was down 1%.
The Financial Select SPDR ETF (XLF) plunged 4.1%, with shares of JPM, Wells Fargo, Charles Schwab and Bank of America all notable holdings. The SPDR S&P Regional Banking ETF (KRE) plunged 8.2% to a three-year low. The SIVB stock is a notable holding of KRE, along with KeyCorp and Western Alliance.
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Market rally analysis
The stock market rally had a very negative day, with a bearish reversal damaging major indices and stocks.
The S&P 500 opened above its 50-day line, but quickly hit resistance at the 21-day moving average and reversed below its 200-day line and March 2 low.
The Nasdaq first broke above its 21-day line and then reversed below the 200-day line. The tech-heavy composite briefly undermined its 50-day mark before stabilizing just above that level.
The Dow Jones broke below its 200-day line to a four-month low.
The Russell 2000 fell decisively below its 50-day line, down to its 200-day line.
Some leaders resisted, but most did not.
Banking concerns triggered by SIVB, Silvergate and KeyCorp stocks do not mean a financial crisis is on the way. Banks, especially giants such as JPMorgan and Bank of America, are much better capitalized than they were during the financial crisis of 2007-2009. But the fact that the words “financial crisis” are even mentioned is a big change.
If banks restrict their lending aggressively, it would quickly affect the whole economy. It would also increase the already high risk of the Federal Reserve overshooting rate hikes, triggering a hard landing.
Friday’s jobs report will be important, but it’s the market’s reaction that matters. Keep in mind that if the economy suddenly shuts down, lagging jobs data will offer no warning.
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What to do now
With the S&P 500 and other major indices heading south again, now is not the time to add exposure. Investors should look to cut losses on recent distressed purchases.
Maybe the market rally will find support again with a tame jobs report or inflation data coming up, but hope is no strategy. Key indices are about to drop decisively.
On the upside, wait for the S&P 500 and Nasdaq to return to their 21-day lines. If this happens, new buying opportunities will appear. So keep working on those watchlists.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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