US Stocks Cautiously Rebound Amid Positive Economic Data Following Banking Stocks Selloff

Zinger Key Points
  • Anxieties about the banking sector reemerge as a result of Deutsche Bank's sell-off.
  • Fed's Bullard sees one more hike at the next meeting or soon after.

Uncertainty is dominating the market Friday, with renewed concerns over the health of the financial sector.

The selloff of Deutsche Bank AG DB resulted in significant losses for European bank shares, and risk aversion later expanded to U.S. financial institutions. Investors continued to flock to safe haven U.S. Treasury securities, amid worsening sentiment and rising expectations of a Fed rate pause in May.

Cues From Friday's Trading:

After opening in the red, the major U.S. stock indices attempted a feeble recovery during Friday midday session. The S&P 500 index was broadly flat on the day (at 12:00 p.m. EDT), the Dow Jones Industrial eased by 100 points or 0.3%, and the Nasdaq Composite was 0.4% lower. 

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U.S. Indices' Performance On Friday
Index Performance (+/-)   Value
Nasdaq Composite -0.30%   11,745.26
S&P 500 Index -0.1%   3,942.33
Dow Industrials -0.3%   32,059.38

Analyst Color:

The market appears to be telling that we will get through the banking crisis, said Brad McMillan, chief investment officer at Commonwealth Financial Network.

“With all the turmoil and headlines, the system is working as it should to contain the damage,” he said.

The analyst noted that banks on the whole are well-capitalized and the government has the tools and will to solve problems. “Keep calm and carry on,” he added.

Bank of America investment strategist Michael Hartnett expressed a bearish view on the stock market, forecasting further declines in the next three to six months. In the 1970s and 1980s, the Dow Jones showed negative returns after the last Fed hike. Tighter bank lending will erode the lifeblood of companies, culminating in job and profit losses, he added. 

Major US Equity ETFs Today

As of midday trading on Friday, the SPDR S&P 500 ETF Trust SPY fell 0.2%, to $392.39, the SPDR Dow Jones Industrial Average ETF DIA was 0.2% lower to $320.25 and the Invesco QQQ Trust QQQ moved down 0.45%, to $308.30, according to Benzinga Pro data.

US Sectors Today

The Consumer Discretionary Select Sector SPDR Fund XLY and the Financial Select Sector SPDR Fund XLF, were the underperformers, losing about 1%. The Technology Select Sector SPDR Fund XLK fell 0.7%.

The Utilities Select Sector SPDR Fund XLU and the Consumer Staples Select Sector SPDR Fund XLP, outperformed by surging 1.5% and 1.3%, respectively, amid a flight to defensive industries.

Latest Economic Data:

Durable goods orders in the U.S. declined by 1% month-over-month in February 2023, compared to market forecasts of a 0.6% increase, with transportation equipment showing the biggest drop, down 2.8%, according to data published by U.S. Census Bureau.

The S&P Global U.S. Manufacturing PMI surprisingly rose from 47.3 in February to 49.1 in March 2023, exceeding estimates of 47 and registering the lowest loss in the current five-month run of declining factory activity. Inflationary pressures eased as supplier price increases were less pronounced and certain raw material prices moderated.

The S&P Global U.S. Services PMI jumped to 53.8 in March 2023, up from 50.6 in February, and substantially above market estimates of 50.5. This was the fastest increase in service activity since April 2022. New orders climbed for the first time since September of last year, and at the strongest rate since May of 2022, with both domestic and international client demand strengthening.

Speaking at Columbia University, St. Louis Fed President James Bullard said the latest Fed officials' projections suggest one more rate hike at the next meeting or soon after. He sees 80% chance financial stress abates since "collapse of Silicon Valley Bank was ‘quirky situation’ and regulators have tools to handle fallout."

Stocks In Focus:

  • Block Inc. SQ shares are down for a third straight session, with the stock dropping over 3.5% on Friday. On Thursday, the stock slumped about 15% after it got called up by short-seller Hindenburg.
  • Deutsche Bank fell close to 8% after the spike in its credit default swaps and risk aversion spread over the U.S. financial space.
  • Morgan Stanley MS tumbled 3.5%, trading at levels unseen since the end of October 2022.
  • JP Morgan Chase & Co. JPM fell 2.2%, Citigroup C slipped 2.3% Wells Fargo & Company WFC fell 2.4%.
  • Tesla, Inc. TSLA lost 2% on the day. According to Vanda Research, net daily purchases of Tesla shares by individuals have fallen by about 75% as of Wednesday from a peak of $436 million on March 1. Retail traders have become net sellers on TSLA this week, for the first time in nearly a year.

Top Analyst Calls

  • Block: Atlantic Equities downgrades from Overweight to Neutral and lowers price target from $95 to $70.
  • Meta Platforms Inc. META: Barclays maintains at Overweight and raises price target from $260 to $270.
  • Regeneron Pharmaceuticals, Inc. REGN: Jefferies upgrades from Hold to Buy and increases price target from $675 to $925; Raymond James upgrades from Underperform to Market Perform.

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures fell 1% on Friday, with a barrel of WTI-grade crude oil down to $68.68.

The benchmark 10-year Treasury yield fell to 3.37% on Friday, down 6 basis points.

The major European markets ended Friday’s session in the red, hit by the bank stocks' selloff. The iShares MSCI Eurozone ETF EZU fell 1.6%.

Gold eased 0.4% to $1,984/oz, with the SPDR Gold Trust GLD down 0.7%, while silver surged 0.5% to 23.14, with iShares Silver Trust SLV gaining 0.1%. 

Read Next: Market Prices In 1.25% Fed Rate Cut By End Of 2023: Economist Says There's No Chance

Staff writer Piero Cingari updated this report midday Friday. 

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