So what happened yesterday in one of the more awful sessions, as the various stock index futures were lower early in the morning, and then for some strange reason reversed to the upside after the release of the 8:30pm weekly jobless claims report, which showed the highest number of claims in five months at a gain of 21,000 up to 211,000.
This immediately got the bullish juices flowing again on the perception that the labor market was finally weakening a bit, so this could take some pressure off of the Fed to ease back on interest rates increases. This is why the Dow got up to a gain of 192 points and things looked good until 12noon when there was a complete collapse into the close which resulted in a final loss of 543 down to 32,254. Every stock was lower except for harmless little INTC that eked out a nominal gain.
The S&P initially felt the bullish urge as well as it gained 25, and then went negative at 12noon also before collapsing as well to a final awful loss of 73 down to 3918. In the process it broke that 200-day moving average level at 3940 and once it did that, there was nothing holding it up until the final bell mercifully ended the downside massacre. This was the first close under that technical indicator since last November 9th. So the day’s action showed an astounding downside reversal of 98 points, which is extremely rare for sure and was the second worst loss for the year.
The Nasdaq also showed gains at the opening to be ahead by 91 before also collapsing to a final loss of 237 down to 11,338 while the Russell 2000 Index of small stocks really got blasted at a 53 point decline down to 1826. This was mainly due to the regional banks getting sold off sharply on the SVIB situation.
And the VIX loved this as it finally showed some life on the upside with a gain to 22.61.
Leading the downside were the banks, as SVB Financial lost 60% of its value after announcing plans to raise up to $1.75 billion in order to strengthen its position amid concerns about higher interest rates and to offset losses from bond sales. This resulted in very large declines by other banks, including JPM which got blasted to the downside on a messy lawsuit involving a former top executive regarding his involvement with none other than Jeffrey Epstein and the possibility of the current C.E.O. being asked to testify.
This disaster follows two days of testimony before Congress by Fed Chair Jerome Powell, who said that the central bank was prepared to continue making big interest rate increases if necessary. Fears about a persistently aggressive Fed have been weighing on major indexes, all of which are on track for weekly losses.
The Fed’s inflation-fighting policies risk slowing the economy too much and pushing it into a recession, while also going too far in softening a strong labor market and putting many people out of work.
Yields on the two-year Treasury eased to 4.90% from about 5.05% just before the weekly jobless claims release. It had been hovering at its highest level since 2007. The 10-year slumped down to 3.92% which narrowed the historically higher inversion from its worst showing since 1981. Yields softened on buying from the old “flight to quality” syndrome.
Traders are leaning toward the Fed raising its benchmark interest rate by 50 basis points on March 22nd after expecting 25 prior to Powell’s testimony this week.
The Fed’s goal is to bring inflation down to 2%. The central bank has already increased its key overnight rate to a range of 4.50% to 4.75%, up from virtually zero at the start of last year, its fastest set of hikes in decades.
Companies, meanwhile, have been cautious about their prospects through 2023 with uncertainty about the direction of the economy and inflation. GM fell after joining a long list of companies with plans to trim its workforce amid worries about a recession. Many companies are coming off of a weak fourth quarter, with earnings for the S&P slipping about 4.6%. Economists expect profits to fall through the first half of 2023.
Earnings this week include: yesterday – MDB lower and BJ, BBW higher; today – ORCL, ULTA, DOCU, GPS lower
Economic reports will see: yesterday – weekly jobless claims came in at the highest level in 5 months at a gain of 21K up to 211K ; today – February jobs report came in higher at a gain of 311K with the prior two-month revisions down by 34K. The unemployment rate rose to 3.6% while average hourly earnings were up by 0.2% and year over year they were ahead by 4.6%. The average hourly workweek slipped to 34.5 hours while the labor force participation rate was 62.5. Overall this was a god report and hopefully will lead to some stabilization today after yesterday’s downside disaster.
Donald M. Selkin
Chief Market Strategist
Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.