Closing Stock Market SummaryThe stock market suffered sizable losses today. The employment report brought relatively good news with nonfarm payrolls being stronger than expected and average hourly earnings growth being weaker than expected, but the dealings involving SVB Financial (SIVB halted) were the biggest driver of today's price action. A broad retreat saw the S&P 500 fall below 3,900 on above average volume.
SVB Financial Group's Silicon Valley Bank has been shut down as the FDIC created a Deposit Insurance National Bank of Santa Clara to protect insured depositors of Silicon Valley Bank, Santa Clara, California. This news followed earlier reports that the Founders Fund had advised companies to pull their money from Silicon Valley Bank, according to Bloomberg, and that deposit outflows at SVB Financial were outpacing the sales process (i.e., there were reports that larger banks had reportedly been looking at buying SVB, but their willingness to do so diminished as the bank's deposits went away), according to CNBC.
SVB Financial's troubles created uncertainty about a potential contagion effect in the banking industry that fostered a strong flight to safety bid in the Treasury market. The 2-yr note yield fell 29 basis points to 4.59% and the 10-yr note yield is down 23 basis points to 3.70%.
The SPDR S&P Banking ETF (KBE) declined 4.2% and the SPDR S&P Regional Banking ETF (KRE) fell 4.4%.
Most reporting thus far has highlighted views by analysts/pundits that SVB's situation won't prove to be a systemic banking problem, though, given how well capitalized the banking system is. That said, the market saw a rebound effort interrupted after it was reported around 12:30 p.m. ET that Silicon Valley Bank would be shut down. The market lost its footing from there as broad based selling efforts picked up sending the S&P 500 to 3,846 at its lows for the session.
The S&P 500 financial sector (-1.8%) was among the worst performers for the 11 sectors, but its losses were limited somewhat by gains in Dow component JPMorgan Chase (JPM 133.65, +3.31, +2.5%), which is viewed as a financial fortress that stands to benefit from the fallout at SVB Financial.
Meanwhile, the defensive-oriented consumer staples (-0.5%) and health care (-0.7%) sectors closed with the slimmest losses. The CBOE Volatility Index flirted with 29.00 today before settling up 9.7% at 24.80. For the week, the CBOE Volatility Index increased 34.1%.
Declining stocks outpaced advancing stocks by a 6-to-1 margin at the NYSE and a better than 4-to-1 margin at the Nasdaq.
- Nasdaq Composite: +6.4% YTD
- S&P Midcap 400: +0.9% YTD
- Russell 2000: +0.7% YTD
- S&P 500: +0.6% YTD
- Dow Jones Industrial Average: -3.7% YTD
Reviewing today's economic data:
- February Nonfarm Payrolls 311K (consensus 205K); Prior was revised to 504K from 517K; February Nonfarm Private Payrolls 265K (consensus 203K); Prior was revised to 486K from 443K;
- February Unemployment Rate 3.6% (consensus 3.4%); Prior 3.4%; February Avg. Hourly Earnings 0.2% (consensus 0.3%); Prior 0.3%; February Average Workweek 34.5 (consensus 34.6); Prior was revised to 34.6 from 34.7
- The key takeaway from the report is that it was still a strong report for this point in the Fed's tightening cycle, and while the SIVB issue is causing a notable distraction, the strength of the report in our estimation is still enough to keep a 50 basis points rate hike on the table for the March FOMC meeting.
There is no U.S. data of note on Monday.
Britain and the EU are making a deadly hash of tackling irregular migration
Comprehensive solutions are hard to devise, but illegal and inhumane measures are not the way forward
In July 1938, delegates from the UK, the US and 30 other countries met in the French spa town of Évian-les-Bains to consider how to help German and Austrian Jews seeking safety abroad from Nazi persecution. The conference ended in failure. No country — except, for unusual reasons of its own, the Dominican Republic — was willing to take in large numbers of Jewish refugees. Four months later, Kristallnacht erupted — a murderous Nazi rampage against Jews and their property.
From this shameful episode of European history there are lessons to be drawn, but they are not exactly those suggested by Gary Lineker, the television presenter and former England football captain. In likening the British government’s language on migrants to that of Nazi Germany in the 1930s, Lineker drew a superficial and historically inaccurate analogy. The real lesson of that “low dishonest decade”, as WH Auden described the era in a poem written in 1939, is that the best way for democracies to forge humane, legal and workable refugee and migrant policies lies in international co-operation.
On all counts, the British government’s latest initiative to curb migration in small boats across the Channel from mainland Europe promises to fall miserably short. The UK is doing no better than the EU, which reported 330,000 irregular border crossings last year, the highest since 2016 and well above the almost 46,000 recorded as having arrived on the south coast of England.
The British measures are inhumane because they include a provision for the rapid removal of almost all migrants arriving on small boats, overriding their right to apply in the UK for asylum. The proposed legislation blurs the vital distinction between economic migrants from Albania, a poor but democratic country where persecution is not the issue, and refugees from war-ravaged or repressive states such as Afghanistan, Iran, Iraq and Syria.
As for the legality of the measures, even the government acknowledges that they hover on the edge of international law. Home secretary Suella Braverman said in a letter to MPs on Tuesday that there was a “more than 50 per cent” possibility that they would breach the UK’s obligations under the European Convention on Human Rights.
Finally, the initiative seems unlikely to work. At its heart is a pledge to return irregular migrants either to where they came from, or to a “safe” third country. But it is fanciful in the extreme to imagine that the UK will be able to send unwelcome Afghans back to Afghanistan or Syrians to Syria.
Nor is there much prospect of a bilateral returns deal with France. British prime minister Rishi Sunak and French president Emmanuel Macron met on Friday to outline new steps aimed at curbing cross-Channel migration. However, Paris takes the view that any deal will need to be negotiated between the UK and the EU as a whole.
The conclusion — and here critics like Lineker have a fair point — is that the government is dressing up its initiative in deliberately harsh language for the purpose of recovering political ground ahead of the next general election. Opinion surveys indicate that the small boats issue is the second most important concern of voters who gave the Conservative party its thumping majority in the 2019 election.
Having accepted numerous refugees from Hong Kong and Ukraine last year, and having allowed legal net immigration to rise to record post-Brexit levels, the government can reasonably claim that it is hardly pulling up the drawbridge. Rather, the problem is that Boris Johnson, the former premier, failed to secure a post-Brexit migrant returns arrangement in his 2019 deal with the EU. This leaves Sunak’s government floundering with few international partners, bar the dubious and as yet untested example of deportations to Rwanda, as it struggles to manage Channel crossings.
It is small consolation to the Conservative government that the EU is making an equally dismal hash of its policies. From 2014 to the present day, more than 26,000 people have died in the Mediterranean, making it the world’s most deadly sea for irregular crossings.
Efforts to distribute refugees and migrants fairly among the EU’s 27 states have largely failed, placing a heavy and unequal burden upon countries such as Greece, Italy and Malta, where most arrive initially. In an effort to stem the flow of people, the EU’s border control agency Frontex has covered up and even encouraged illegal “pushbacks” of asylum-seekers, according to investigators at Olaf, the bloc’s anti-fraud office.
The British government is therefore not alone in its troubles. However, both the UK and the EU would do well to reflect that no satisfactory response to irregular migration is to be found in measures that break international law and abuse human rights.
Research Calls
- Upgrades:
- Alaska Air (ALK) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $62
- Ameresco (AMRC) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $64
- Harvard Biosci (HBIO) upgraded to Buy from Speculative Buy at The Benchmark Company; tgt raised to $4
- KeyCorp (KEY) upgraded to Neutral from Underweight at Piper Sandler; tgt lowered to $16.50
- KeyCorp (KEY) upgraded to Outperform from Neutral at Robert W. Baird; tgt $20
- Marathon Petroleum (MPC) upgraded to Buy from Neutral at Mizuho; tgt raised to $160
- PLAYSTUDIOS (MYPS) upgraded to Buy from Hold at Craig Hallum; tgt raised to $5
- Riskified (RSKD) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $8
- Roblox (RBLX) upgraded to Buy from Hold at Jefferies; tgt raised to $48
- Silk Road Medical (SILK) upgraded to Neutral from Sell at Citigroup; tgt $50
- United Airlines (UAL) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $80
- Zimmer Biomet (ZBH) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $145
- Downgrades:
- Admiral Group (AMIGY) downgraded to Hold from Buy at Deutsche Bank
- a.k.a. Brands (AKA) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $2
- Allbirds (BIRD) downgraded to Market Perform from Outperform at Telsey Advisory Group; tgt lowered to $2.25
- Allbirds (BIRD) downgraded to Mkt Perform from Outperform at William Blair
- Allbirds (BIRD) downgraded to Neutral from Buy at Guggenheim
- Allegiant Travel (ALGT) downgraded to Equal Weight from Overweight at Barclays; tgt raised to $105
- Apple (AAPL) downgraded to Sell from Neutral at LightShed Partners; tgt $120
- Beacon Roofing Supply (BECN) downgraded to Sell from Hold at Zelman
- BioXcel Therapeutics (BTAI) downgraded to Hold from Buy at Jefferies; tgt raised to $22
- Canadian Solar (CSIQ) downgraded to Neutral from Buy at Citigroup; tgt lowered to $44
- Caterpillar (CAT) downgraded to Sell from Neutral at UBS; tgt lowered to $225
- DocuSign (DOCU) downgraded to Underweight from Neutral at JP Morgan; tgt lowered to $48
- Fulcrum Therapeutics (FULC) downgraded to Neutral from Outperform at Credit Suisse; tgt lowered to $8
- Generac (GNRC) downgraded to Neutral from Buy at Citigroup; tgt lowered to $140
- Hugo Boss AG (BOSSY) downgraded to Hold from Buy at Deutsche Bank
- JD.com (JD) downgraded to Neutral from Buy at Bocom; tgt $43
- Kosmos Energy (KOS) initiated with a Add at Peel Hunt; tgt $8.94
- Legrand SA (LGRDY) downgraded to Neutral from Overweight at JP Morgan
- Schroders plc (SHNWF) downgraded to Neutral from Outperform at Credit Suisse
- Stride (LRN) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt $46v
- Southwest Air (LUV) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $38
- SVB Financial Group (SIVB) downgraded to Hold from Buy at Truist; tgt lowered to $100
- SVB Financial Group (SIVB) downgraded to Mkt Perform from Outperform at Raymond James
- SVB Financial Group (SIVB) downgraded to Peer Perform from Outperform at Wolfe Research
- Others:
- Array Tech (ARRY) initiated with a Neutral at Citigroup; tgt $24
- Ballard Power (BLDP) initiated with a Sector Perform at Scotiabank; tgt $7.25
- Chewy (CHWY) initiated with a Buy at ROTH MKM; tgt $52
- Comerica (CMA) added to Focus List at Citigroup; tgt $90
- Cross Country (CCRN) initiated with a Buy at Loop Capital; tgt $30
- Eldorado Gold (EGO) resumed with an Underperform at BofA Securities; tgt $8.90
- Farmers National (FMNB) initiated with a Neutral at Janney; tgt $14
- Intuitive Machines (LUNR) initiated with a Buy at ROTH MKM; tgt $20
- McCormick (MKC) initiated with a Sell at UBS; tgt $71
- Omega Therapeutics (OMGA) initiated with a Buy at Jones Trading; tgt $11
- Pool (POOL) initiated with an Outperform at Oppenheimer; tgt $408
- Privia Health (PRVA) initiated with an Outperform at RBC Capital Mkts; tgt $36
- Rivian Automotive (RIVN) resumed with a Buy at BofA Securities; tgt lowered to $40
- Schneider Electric (SBGSY) resumed with an Overweight at JP Morgan
- Shoals Technologies (SHLS) initiated with a Buy at Citigroup; tgt $34
- SunPower (SPWR) initiated with a Neutral at Citigroup; tgt $16.5
- Sunrun (RUN) initiated with a Neutral at Citigroup; tgt $27
- Voyager Therapeutics (VYGR) initiated with an Outperform at Oppenheimer; tgt $14
Gapping down
In reaction to earnings/guidance:
- BIRD -22.5% (also announces strategic transformation plan, will slow pace of openings; also names new CFO), DOCU -14% (also CFO to step down), ZUMZ -9.9%, AVO -8.1%, GPS -7.2% (also announces changes to exec leadership team), JKS -7%, GENI -5.6%, ORCL -4.9% (also increases dividend), AVPT -4.5%, ULTA -1.5%
Other news:
- SIVB -45.1% (Founders Fund has advised cos to pull money from Silicon Valley Bank, according to Bloomberg)
- NNDM -5.8% (NNDM makes formal offer to acquire SSYS for $18/sh)
- IMCR -1.5% (informs its investors that it does not hold cash deposits or securities at Silicon Valley Bank)
- VCTR -1.1% (reports Feb AUM)
Analyst comments:
- EGO -1.1% (resumed with an Underperform at BofA Securities)
Gapping up
In reaction to earnings/guidance:
- HRT +8%, BKE +2.8%, LEV +2.5%, TH +2.2%, AOUT +2.1%, HCP +1.2%
Other news:
- SSYS +12.1% (confirms receipt of unsolicited acquisition proposal from Nano Dimension (NNDM) for $18.00 per share)
- ENVX +7.6% (to build its first high-volume facility in Malaysia)
- AZUL +2.4% (reports traffic results for February)
- AB +0.7% (reports Feb AUM)
Analyst comments:
- MYPS +7.5% (upgraded to Buy from Hold at Craig Hallum)
- ALK +3.2% (upgraded to Overweight from Equal Weight at Barclays)
- RBLX +2.9% (upgraded to Buy from Hold at Jefferies)
- UAL +1.3% (upgraded to Overweight from Equal Weight at Barclays)
Meta is working on a decentralized social app
If there is a social media phenomenon getting some kind of popularity, Meta will try and jump in. We have seen the company copy different kinds of formats ranging from Stories to short videos after seeing the success of other platforms. Now, the Mark Zuckerberg-led company is working on a decentralized text-based app.
Meta confirmed this development in a statement but didn’t give out details about when it plans to release the app.
“We’re exploring a standalone decentralized social network for sharing text updates. We believe there’s an opportunity for a separate space where creators and public figures can share timely updates about their interests,” a Meta spokesperson said.
This new decentralized app, codenamed P92, is still under development — as first reported by MoneyControl. According to the documents seen by the publication, the app will let users log-in through their Instagram credentials. This could irk people who might not want to share that data with another Meta app.
A report by Platformer said that the project will be overseen by Instagram head Adam Mosseri. The company is already involving the legal department to sniff out early privacy concerns before the app is public, the report added.
Meta’s move is seen as its attempt to build a Twitter alternative or a Mastodon competitor. The latter gained popularity after Elon Musk took over Twitter. The decentralized network is part of the Fediverse — a network of decentralized servers — that supports the ActivityPub protocol. Meta’s new app also plans to support ActivityPub making it easier to connect with other instances like Mastodon, according to MoneyControl.