Daily Market Notes: 3-15-2023

After five straight lower days, the Dow finally got back at its sellers but it was not easy while the other indices also made nice gains in a volatile session yesterday.

The Dow got as high as a 487 point gain in late morning on a nice rebound from some of its recent declines, for instance the worst week last week since September. But believe it or not, it actually had the nerve to plunge from those highs to a 15 point low at 3:15pm on a report that Russian fighter jets crashed with a U.S. drone over the Black Sea. After that panic selling, things then reversed course to the upside in a dramatic way from that point into the close with the final result that it ended with a closing advance of 336 up to 32,158. And it was led in this process by gains in the financial stocks that had sold off recently on the bank failures that we saw this week. Such gainers included AXP, GS, JPM plus CRM, MSFT and V.

The S&P did the same but never went negative as it turned a very strong early gain of 82 into a final close of 63 up to 3918 but not before it dipped to a low of only being ahead by 18 at that same 3:15pm time.

The Nasdaq did the best of all as the technology stocks were the beneficiaries of the lower interest rate scenario and ended higher by 239 up to 11,428. And even the Russell 2000 Index of small stocks finally made a nice gain as the beaten-down regional bank stocks made good comebacks after their recent punishment on the SVB and SIG situations.

Some help came from the February C.P.I report which showed that inflation is still high but heading lower. Recently, investors were expecting  inflation to be the most important data of the week, if not month. The worry at the time was that inflation is staying stubbornly high, which could force the Federal Reserve to pick up the pace again on its hikes to interest rates.

The report showed that inflation at the consumer level was 6% in February versus a year before. That matched economists’ expectations and was a slowdown from January’s 6.4% inflation rate, but still way above the Fed’s target. Year over year the advance was 5.5% while the core rate excluding food and energy was up by 0.4% and ahead for the year by 6%. The fact that the report came right in on expectations for a rare change also helped calm investor nerves as well.

In normal times, this could indeed call for an increase in the size of rate hikes. The trouble for the Fed is that it is also facing a banking system that may already be shaky  due to all of its rate increases from the last year, which came at the fastest pace in decades. Meantime, the second- and third-largest bank failures in U.S. history have both come since Friday.

Another thing that the Fed could do is adjust the speed at which it is shrinking its massive balance sheet as this action effectively tightens the screws on the financial system. An easier Fed could give the banking system and economy more breathing room, but it could also give inflation more of an upside push as well.

So now the assumption is that the Fed will raise by 25 basis points next Wednesday or even do nothing at all, as they have to pause about how much tightening is already in the system and has just yet to show up, especially when the labor market and the inflation data are cooling. Markets have been trying to gauge a Fed pivot since last June, it feels like, and gotten it wrong every time but these events feel like they could actually push the Fed to moderate its policy a bit.

In addition to the regional banks making nice gains after their recent beatings, the shares of META, which have been in a strong uptrend for a few months now, made a large advance after it said that it expects expenses this year to be lower than earlier forecast, as it is cutting workers and eliminating job openings to rein in operating costs.

The government said late Sunday that it plans to shore up confidence in the banking system following the failures of Silicon Valley Bank on Friday and Signature Bank on Sunday. Banks are struggling as higher interest rates knock down the value of their investments, while contending with worries that skittish customers could try to withdraw their money in large amounts to possibly cause a run.

Some of the wildest action has been in the bond market, where the yield on the two-year Treasury plunged Monday by roughly half of a percent, which is a historic move for  bonds. Yields plummeted as investors piled into investments seen as safe and scaled back their expectations for future rate increases by the Fed.

Yesterday, the two-year yield climbed back to 4.21% from 4.02% late Monday, another huge move while the 10-year jumped to 3.66% from 3.55%. At least this narrowed the yield curve in quite a bit from its recent inversion of more than 100 points last week.

Earnings this week will see: Tuesday – LEN higher; tonight – ADBE, FIVE; Thursday – DG and FDX.

Economic reports will have: Tuesday – February C.P.I. rose by 0.4% and 6% year over year and the core rate excluding food and energy was higher by 0.5% and up by 5.5% year over year, February small business optimism index increased to 90.9 but was still lower than average (98) for the 14th straight month; today  – February retail sales fell by – 0.4%, March NY State Empire Manufacturing Survey plunged to -24.6, February P.P.I. surprisingly declined by -0.1% for a year over year advance of 4.6% and excluding food and energy was unchanged; 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.