Banking crisis escalates ahead of CPI inflation report; Schwab in focus
Dow Jones futures were higher ahead of Tuesday’s open as the banking crisis continues to escalate, with two major bank failures in recent days — SVB Finance (SIVB) and Signature bank (SBNY). Meanwhile, Schwab shares fell 11% on Monday on growing liquidity fears, while Tesla shares rose after the company increased hiring at its Gigafactory in Texas. And GitLab fell 36% of late on revenue.
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Financial crisis
The SPDR S&P Regional Banking ETF ( KRE ) plunged more than 12% Monday, even after paring some losses. That’s on top of last week’s 16% loss.
Regional bank First Republic (FRC) crashed nearly 62%. KeyCorp ( KEY ) plunged 27.3%. And western alliance (WAL) crumbled 47%.
Charles Schwab ( SCHW ) plunged on fears that the largest US brokerage will have to sell some of its bond holdings to cover deposit withdrawals. Schwab stock’s drop at the worst point of the day would be the biggest percentage decline on record (based on data going back to Sept. 23, 1987), according to Dow Jones.
Big American banks were not spared from selling either, either Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) falls 5.8%, 1.8% and 7.1% respectively.
CPI Inflation Report, Earnings
On the economic front, eyes will be on the consumer price index on Tuesday. The CPI is expected to rise by 0.4%, both overall and excluding food and energy. That will bring the headline CPI inflation rate down to 6% from 6.1% in January, with the core inflation rate easing to 5.5% from 5.6%.
Wall Street suddenly sees a solid chance the Federal Reserve will pause its rate hike campaign at next week’s meeting as the failure of three banks raises concerns about broader stress in the financial sector.
Half-point moves are now off the table – just a week after Fed Chair Jerome Powell signaled that policymakers were ready to accelerate rate hikes at next week’s meeting from February’s quarter-point rate.
Now, a sharp plunge in government yields suddenly signals doubts about the strength of the economy. Even if the Fed doesn’t stop next week, markets are betting that rate cuts are around the corner.
On the earnings front, GitLab (GTLB) fell 36% in extended trade after the company’s weaker-than-expected earnings guidance.
The revenue continues to trickle out at the end of the season this week. Among them are Academy sports and outdoor life (ASO), Adobe (ADBE), Dollar General (DG), FedEx (FDX), Five under (FIVE) and Lennar (LEN).
The stock market today
On Monday, the Dow Jones Industrial Average fell 0.3%, and the S&P 500 lost 0.15%. The tech-heavy Nasdaq Composite climbed 0.45% in a day of volatile trading.
Electric vehicle giant Tesla (TSLA) traded up 0.6% on Monday. Among Dow Jones stocks, apple ( AAPL ) rose 1.3% and Microsoft (MSFT) climbed 2.1% in today’s stock market action.
Giant in social media Meta platforms (META), IBD Leaderboard Watchlist Palo Alto Networks (PANW) and New relic (NEWR) – as well as Dow Jones stocks Nike (OF) and Salesforce (CRM) – are among the best stocks to watch in the new stock market correction.
Palo Alto is an IBD Leaderboard Watchlist. New Relic was recently an IBD Stock Of The Day. And Nike was featured in this week’s Stocks Near A Buy Zone column.
3 top growth stocks to buy and watch nowrent stock market correction
Dow Jones Futures Today: Oil prices, Treasury yields
Ahead of Tuesday’s opening bell, Dow Jones futures were up 0.5%, and S&P 500 futures were up 0.6%. Nasdaq 100 futures rose 0.65% relative to fair value. Keep in mind that overnight action in Dow Jones futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
The 10-year US Treasury yield plunged to 3.51% on Monday, as safe-haven trading drove bonds sharply higher following the SVB collapse. Oil prices sold off on Monday after Friday’s brief setback. West Texas Intermediate futures fell nearly 3%, trading below $75 a barrel.
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What to do in the new stock market correction
Now is an important time to read IBD’s The Big Picture column with the stock market trending back into a “market in correction” after heavy losses in recent sessions.
Friday’s Big Picture column commented, “IBD changed its market outlook to ‘uptrend under pressure’ on Thursday. And after Friday’s selloff, we’ve cut the outlook further, to ‘market in correction.’ example, taking profits and cutting losses.”
(Check out IBD stock lists like the IBD 50 and Stocks Near a Buy Zone for more stock ideas.)
Five Dow Jones stocks to watch now
Dow Jones stocks to watch: Nike, Salesforce
Since the Oct. 3 bottom, Nike shares have rallied as much as 59% to a recent high of 131.31. Now, the stock is consolidating within a flat base that offers a buy point at 131.41, according to IBD MarketSmith pattern recognition.
Amid the recent weakness, the stock is below its 50-day moving average, a key benchmark. A decisive repeat would be bullish for the base-building prospects, carving out the right side of the pattern. The relative strength line is also holding up well during the rapidly developing stock market correction.
In recent weeks, Dow Jones leader Salesforce has shown great upside following strong results for the fourth quarter. But those gains have largely disappeared amid recent market weakness, and now the stock is back below a 178.94 cup-with-handle entry. Still, the stock’s recent strength is a reason to monitor the software leader in the coming sessions.
Top stocks to watch: Meta, Palo Alto, New Relic
Facebook parent Meta Platforms is quietly building a flat base with a buy point of 197.26 after an earnings-driven price rally in February. Shares are about 8% off their last buy point, when they rose 0.8% on Monday.
Back story: Like its social media rivals, Meta is struggling due to a sharp reduction in ad revenue as clients reel over macroeconomic concerns, recession fears and higher interest rates. This comes as it spends billions in a risky effort to build the “metaverse,” a virtual reality world that has yet to catch on.
IBD Leaderboard Watchlist stock Palo Alto Networks continues to trade quietly in a handle following the stock’s 12.5% gain on Feb. 22. Shares remain within striking distance of a base buy point at 192.94. Bullishly, the stock’s relative strength line is at new highs, as the stock outperforms the market averages. PANW stock traded up 0.1% on Monday.
Back story: On Feb. 21, the cybersecurity giant announced strong results for the quarter ended in January, with earnings reaching $1.05 per share, up 81% from a year earlier, on a 26% jump in revenue to $1.7 billion.
Recent IBD Stock Of The Day, New Relic, is working on a flat base with a buy point at 80.98 in the wake of the February 8 earnings-driven rally. The RS line holds up for now. The NEWR share fell 0.7 percent on Monday.
Back story: New Relic offers a cloud-based suite of software products that enable organizations to collect, store and analyze massive amounts of data in real time. Customers gain increased visibility into their enterprise software to help make data-driven decisions.
Join IBD experts as they analyze leading stocks in the current stock market correction on IBD Live
Tesla shares
Tesla shares rose 0.6% on Monday, as it continues to see some support around its 50-day moving average. Shares closed Monday about 55% off their 52-week high.
On Tuesday, weekly China EV insurance registration data could be a key gauge of Tesla demand in the world’s biggest EV market, which is in the middle of a huge price war started by Tesla.
Dow Jones Leaders: Apple, Microsoft
Among Dow Jones stocks, Apple shares rose 1.3% on Monday, snapping a two-day losing streak and finding support at the long-term 200-day line.
Microsoft shares bullishly regained their 200-day line during Monday’s 2.1% jump. The stock is still around 20% of its 52-week high after the latest decline.
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