Closing Stock Market SummaryIt was a volatile start to the new week for the stock market as investors digested a busy weekend of news surrounding the banking sector fallout.
Market participants learned through a joint statement from the Federal Reserve, Treasury, and FDIC that all depositors at Silicon Valley Bank and Signature Bank of New York would be fully protected even though both banks had been taken over by regulators. In turn, the Fed also introduced a Bank Term Funding Program (BTFP) that will help banks avert selling Treasury and other government securities at a loss by allowing them to offer those securities to the Fed, which will value them at par, as collateral.
Those efforts were designed to restore some normalcy to the banking system and some calm to the capital markets. Price action in banking stocks today suggested that regulators did not succeed in either regard, and that their efforts may have created a belief that this issue is bigger than previously thought.
The SPDR S&P Regional Banking ETF (KRE) fell another 12.3% and the SPDR S&P Bank ETF (KBE) fell another 10.0%. First Republic Bank (FRC 31.21, -50.55, -61.8%), Western Alliance Bancorp. (WAL 26.12, -23.22, -47.1%), Comerica (CMA 42.54, -16.27, -27.7%), and PacWest Bancorp. (PACW 9.75, -2.60, -21.1%) were among today's biggest losers in the banking space.
Still, the main indices spent a good portion of today's session in positive territory thanks to gains in some heavily-weighted components. Mega-cap companies with solid balance sheets, like Apple (AAPL 150.47, +1.97, +1.3%) and Microsoft (MSFT 253.92, +5.33, +2.1%), were favored as investors rotated capital into stocks that are seen as being removed from the fallout in the banking industry. The Vanguard Mega Cap Growth ETF (MGK) rose 0.8% versus a 1.2% loss in the Invesco S&P 500 Equal Weight ETF (RSP).
The 2-yr note yield fell 57 basis points to 4.02% and the 10-yr note yield fell 18 basis points to 3.52%, as investors recognized the potential for a less aggressive Fed in the wake of this bank fallout and the potential for it to have a disinflationary impact on the economy.
The former point was also reflected in the fed funds futures market. The CME FedWatch Tool shows a 55.4% probability of a 25 basis points rate hike at the March FOMC meeting and a 44.6% probability of no rate hike versus last week when there was a 78.6% probability of a 50 basis points rate hike.
Unsurprisingly, the S&P 500 financial sector (-3.8%) was the worst performer by a wide margin. The real estate (+1.6%) and utilities (+1.5%) sectors showed the largest gains. The health care sector, up 0.9%, was also a relative strength leader, digesting the news that Pfizer (PFE 39.86, +0.47, +1.2%) will acquire Seagen (SGEN 197.65, +25.04, +14.5%) for $43 billion or $229.00 per share in cash and Carl Icahn's proxy battle with Illumina (ILMN 226.94, +32.93, +17.0%).
- Nasdaq Composite: +6.9% YTD
- S&P Midcap 400: -1.0% YTD
- Russell 2000: -1.0% YTD
- S&P 500: +0.4% YTD
- Dow Jones Industrial Average: -4.0% YTD
Looking ahead to Tuesday, market participants will receive the following economic data:
- 6:00 ET: February NFIB Small Business Optimism Index (prior 90.3)
- 8:30 ET: February CPI (consensus 0.4%; prior 0.5%) and Core CPI (consensus 0.4%; prior 0.4%)
There was no U.S. economic data of note today.