Nasdaq, S&P 500, Dow Move Higher On Central Bank Liquidity Boost: Analyst Says Potential Relief Rally On Horizon

The risk mood on Wall Street recovered Monday, with major equity indices posting gains. Some of the positive sentiment is attributable to the coordinated action announced by five of the world’s biggest central banks to ease liquidity strains. 

Cues From Past Week’s Trading:

Stocks closed the week ended March 17 mostly higher despite the volatility seen amid the continuing news flow on the banking crisis. The S&P 500 and the Nasdaq Composite indices recorded weekly gains of 1.43% and 4.41%, respectively, while the Dow Industrials in which financial stocks have over 15% weighting edged down 0.15%.

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The mood in the past week alternated between hope and despair as traders digested the government’s rescue plan to backstop all Silicon Valley Bank deposits, reports of trouble at First Republic Bank FRC and, subsequently, the private banks’ rescue package for the bank.

Issues at Credit Suisse AG CS also simmered through the week, which culminated in a Swiss National Bank-brokered deal to be bought by peer UBS Group Inc. UBS over the weekend.

Analyst Color:

The fallout from the banking turmoil has created a wave of technical damage across the equity markets and the degree of oversold conditions suggests a potential relief rally could be on the horizon, said LPL Chief Technical Strategist Adam Turnquist.

Drawing inspiration from historical performance, the analyst noted that whenever 20% or more of S&P 500 stocks reached oversold levels as seen last week, the average return over the following three months was 4.2%, outpacing the average three-month return of 2% during the timeframe.

“A breakdown below 3,783 would raise the odds for a retest of the October lows and trigger a bearish signal in the December Low indicator,” he added.
According to Wedbush analysts led by Daniel Ives, technology stocks are behaving as a "safety blanket" trade that may have more room to the upside. "Apple AAPL firmly remains our top tech pick for 2023. Tesla TSLA remains our favorite disruptive tech name," Ives wrote.

Major Indices Today

In morning trading on Monday, the SPDR S&P 500 ETF Trust SPY rose 0.9% to $393.67 and the Invesco QQQ Trust QQQ held broadly steady at $305.53 (+0.04%), according to Benzinga Pro data.

Among sectors, Materials Select Sector SPDR XLB outperformed (up 1.4%), followed by Financials Select Sector SPDR XLF (up 1.3%) and Energy Select Sector SPDR XLE (up 1.2%).

The Utilities Select Sector SPDR XLU was slightly lower (down 0.2%) as well as Technology Select Sector SPDR XLK.

Upcoming Economic Data:

The economic calendar for the day is fairly light, with no market-moving data due for the day. Nevertheless, momentum picks up on Tuesday, as the Federal Open Market Committee begins a two-day meeting. What was previously expected to be an uncomplicated 25-basis-point hike, could be a tougher decision now given the unraveling of the financial sector in the wake of the banking crisis.

Fed funds futures are currently pricing in a 27% probability of the Fed pausing at 4.5%-4.75% and a 73% probability of a 25-basis-point increase.

The Treasury will auction four-week and eight-week bills at 11:30 a.m. EDT.

The Fed will release data on reserve balances, which is otherwise the money depository institutions maintain in their accounts at the regional Fed banks.

Stocks In Focus:

First Republic Bank FRB plummeted 18% on the day, extending to a drop of almost 80% this month, as S&P downgraded the bank further into junk status and said the recent $30-billion capital injection may not fix its liquidity concerns.

• New York Community Bankcorp. Inc. NYCB rose over 10% in premarket trading after Keefe, Bruyette & Woods upgraded the stock from Market Perform to Outperform. The Federal Deposit Insurance Corporation announced the bank has agreed to buy deposits and certain portfolios of the Signature Bridge Bank.
• On the other hand, First Republic Bank extended its losses and fell over 16.5% amid rumors of a potential buyout. The company’s credit rating was further downgraded by S&P.
• Opendoor Technologies Inc. OPEN slumped over 12%.
• Foot Locker Inc. FL and Pinduoduo Inc, PD are among the companies reporting ahead of the market open.

Top Analyst Calls

Dell Technologies Inc. DELL: Goldman Sachs initiates with Buy rating

Hewlett-Packard Enterprise Company HPE: Goldman Sachs initiates with Hold rating

• HP Inc. HPQ: Goldman Sachs initiates with Hold rating
• FedEx Corp. FDX: Jefferies raises price target from $175 to $225.
• Microsoft Corp. MSFT: Evercore ISI ups price target from $280 to $295
• Unum Group UNM: Jefferies upgrades from Hold to Buy

Commodities, Bonds, Other Global Equity Markets:

Crude oil recovered some ground on Monday and surged to $66.7 a barrel, up by 0.7%. Gold dropped 0.8% to $1,970/oz. 

Treasury yields were also seen ticking upward. The yield on the 10-year Treasury note rose 5bps to 3.49%, while yields on two-year note moved higher by 13bps to 3.97%. 

All the major Asian and European markets were higher across the board on Monday, with the iShares MSCI Eurozone ETF EZU gaining 2%. 

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Benzinga staff writer Piero Cingari updated this report midday Monday.