Daily Market Notes: 3-13-2023

As if the market does not have enough to worry about, on Friday it got hit with another negative input that came out of the blue, so to speak. In addition to the usual worries about rising interest rates, we now had the largest U.S. bank failure in 15 years.

As a result, the Dow ended lower by 345 points down to 31,908 hurt by large declines in CAT, GS and CRM. But during the day, it had the nerve to rally, for some strange reason, to a 168 point advance before falling as much as 471 on the lows and ended with its worst week since last September.

The S&P followed the same pattern with a strange intraday rally of 15 before plunging to a closing decline of 56 down to 3861, also for its worst week since last September as well.

The Nasdaq was able to put in a feeble rally of 35 before it also collapsed to end 192 points lower at 11,139 as large technology stocks took the brunt of the selling.

The Russell 2000 Index of small stocks was a real disaster because it contains many of the small banks that were affected by the SVIB disaster and it ended with a 53 point downside shellacking to 1772.

As a result of this intense selling from the past two days, the VIX finally showed some life and rose to 24.80. which was its highest level since last November.

Regulators took over Silicon Valley Bank in a surprise midday move after shares of its parent company, SVB Financial, plunged more than 60%. The company, which served the industry surrounding startup companies, was trying to raise cash to relieve a crunch. Analysts have said it was in a relatively unique situation, but it still led to concerns a broader banking crisis could erupt, so the old “sell first, ask questions later “ mentality was on full display.

SVB’s problems arose from an $1.8 billion loss as it was forced to liquidate $21 billion in Treasury and mortgage-backed securities which had declined in value because of the Fed rate hikes over the past year. It was forced to sell because its deposits had been dwindling due to new weaker biotech and technology startup activity.

Friday’s jobs report might have helped if it were not for the panic selling on the SVB situation as it showed higher than expected gains of 311,000 but the unemployment rate rose to 3.6% which was good because this was the result of an increase in the labor force participation rate, and the two prior months were revised downward by 34K. Most importantly, average hourly earnings rose by less than expected at 0.2% last month and 4,6% for the year.

So now the latest in the neurotic thinking about the Fed’s next interest rate hike is back down to 25 basis points after everyone had agreed that 50 basis points would be done next Tuesday after Chair Powell’s hawkish speech last Wednesday.

This new thinking helped send Treasury yields sharply lower as the 10-year Note  plunged to 3.69% from 3.91% late Thursday while the 2-year got pushed lower to 4.60% which is astounding from the over 5% that it was at on Thursday morning.

Some of the sharpest drops on Wall Street came from banking stocks on worries about who else may suffer a cash crunch if interest rates stay higher for longer and customers pull out deposits. That would set up pain because a flight of deposits could force them to sell bonds to raise cash, right as higher interest rates knock down prices for those bonds.

Besides SVB Financials’ struggles, Silvergate Capital also said this week it is  voluntarily shutting down its bank. It served the crypto industry and had warned it could end up “less than well-capitalized.”

Stock losses were heaviest at regional banks. First Republic Bank tumbled 14.8%. It filed a statement with regulators to reiterate its “strong capital and liquidity positions.”

SCHW lost another 12% after dropping 13% on Thursday as investors stretched for implications from the SVB crisis. Larger banks, which have been stress-tested by regulators following the 2008 financial crisis, held up better as JPM rose after it had gotten blasted lower on Thursday.

Earnings this week will see: Tuesday – LEN; Wednesday – ADBE; Thursday – DG and FDX.

Economic reports will have: Tuesday – February C.P.I., February small business optimism index; Wednesday – February retail sales, NAHB March Housing Market Index; Thursday – weekly jobless claims; Friday – mid-month U. of Michigan Consumer Sentiment Survey.

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.