Dow Jones Futures Fall: S&P 500 Breaks Support As SVB Financial Beats Banks; Job report due
Dow Jones futures fell early Friday, along with S&P 500 futures and Nasdaq futures ahead of Friday’s February jobs report. SVB Financial continued to fall after triggering a sell-off in bank stocks that beat the broad market on Thursday.
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Oracle (ORCL) and Ulta beauty (ULTA) reported earnings late.
The stock rally turned sharply lower on Thursday when questions about the banks’ finances suddenly emerged. The S&P 500 and Nasdaq fell to critical support levels.
Bank shares plummeted SVB Finance (SIVB), parent of Silicon Valley Bank, made a series of negative headlines during the crypto bank’s long run Silvergate capital (SI) said it would be shut down. Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Charles Schwab (SCHW) was among the high-profile losers.
SIVB shares continued to plunge of late as fears of a bank run grew.
Investors should be cautious and wait for the market recovery to show renewed strength.
Key income
ORCL shares fell 4% overnight after Oracle earnings topped but revenue fell short. Oracle shares slid 5.9% to 81.75 on Thursday, falling below the 50-day line. The shares have been working on a buy point of 91.32 from a deep cup with handle.
ULTA stock fell 2% in extended action. Ulta Beauty’s revenue and earnings topped the views, but same-store guidance was light. The beauty retailer giant fell 0.8% to 519.93 on Thursday, just below its 21-day mark. The ULTA stock does not have a clear buy point.
Job report
The Labor Department will release the jobs report for February at 8:30 a.m. ET. Economists expect to see nonfarm payrolls rise by 223,000, a big drop from January’s 517,000, but it will still be a strong two-month start to the year. Unemployment will remain at a 53-year low of 3.4%. Average hourly wages should rise by 0.3%, but the annual wage gain should rise to 4.7%.
On Thursday, Labor reported that initial jobless claims rose more than expected to the highest number since December. Challenger, Gray & Christmas reported that announced layoff plans are the highest to start a year since 2009.
The February jobs report, along with next week’s CPI inflation report, could lock in expectations for a half-point rate hike on March 22.
Dow Jones Futures today
Dow Jones futures fell 0.7% relative to fair value. S&P 500 futures fell 0.7% and Nasdaq 100 futures fell 0.45%.
The 10-year government yield fell 10 basis points to 3.82%. The 2-year yield fell 11 basis points to 4.79%.
Crude oil futures fell slightly.
The February jobs report is sure to swing Dow Jones futures, Treasury yields and Fed rate hikes.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
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Stock market rally
The stock rally got off to a decent start on Thursday on rising jobless claims, but soon turned lower due to banking concerns. The major indexes deteriorated steadily, closing almost down sessions.
The Dow Jones Industrial Average fell 1.7% in Thursday’s trading. The S&P 500 index fell 1.85%, with the SIVB share, First Republic Bank (FRC) and Schwab the biggest losers. The Nasdaq composite slipped 2.05%. The small-cap Russell 2000, which has many financial components, plunged 2.8%.
US crude oil prices fell 1.2% to $75.72 a barrel.
The 10-year government yield fell 5 basis points to 3.92%. The two-year Treasury yield fell 16 basis points to 4.9%, while the six-month Treasury yield fell 3 basis points to 5.28%.
Expectations for interest rate increases changed, but not much.
Markets see a 60% chance of a 50 basis point move on March 22, down from Wednesday’s 78.6%. The odds rose from around 30% before Fed chief Jerome Powell’s hawkish testimony on Tuesday. Markets are now pricing in 75 basis points for rate hikes over the next three Fed meetings, with another quarter-point increase likely over that time.
Bank shares
SIVB shares fell 60% to 106.04, their lowest price since 2016. SVB Financial late Wednesday announced a $1.75 billion share sale. The Silicon Valley Bank parent also cut guidance. Deposits are dwindling due to startups facing a funding drought. There are also major concerns about SVB’s loans to the tech industry.
SIVB shares plunged 22% overnight in volatile, heavy trading. Peter Thiel’s Founders Fund is advising companies to pull money from Silicon Valley Bank, Bloomberg reported. SVB Financial must still price that share issue.
Silvergate Capital, which has been in freefall for months, announced late Wednesday that it would shut down, with Silvergate Bank liquidating. The SI share plunged 42 percent.
The SVB and Silvergate news slammed finance, already under pressure as the extremely inverted yield curve cancels out the traditional short/loan long lending strategy.
KeyCorp ( KEY ), which warned about net interest margins earlier in the week, fell 7.2% on Thursday. Western Alliance Bancorp ( WAL ) fell nearly 13%, and FRC stock plunged 16.5%.
The JPM share fell 5.4 percent. On Tuesday, JPMorgan fell below a buy point at 138.76 and its 50-day line. BAC shares retreated 6.2% to their lowest levels since October. WFC shares also lost 6.2%, falling below the 200-day line after breaking below the 50-day earlier in the week.
SCHW stock plunged 12.8%, going below the 200-day mark and the low base. JPMorgan offered a block sale of 8.5 million Schwab shares, Bloomberg reported. The SCHW share is at its worst levels since October.
Investors will look much more closely at the banks’ books and capital levels, which has not been a real concern until now. The banks are pushing deposit and CD interest rates up considerably, while long-term interest rates are lagging behind. Many banks are sitting on significant unrealized losses on loans and other securities.
If the banks limit lending, it can quickly cool down the economy. Meanwhile, SVB Financial and Silvergate Capital’s troubles are raising concerns for their tech and crypto clientele.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 2.3%, with ORCL stock as a major IGV component. The VanEck Vectors Semiconductor ETF ( SMH ) yielded 1.9%.
As a result of more speculative stock stocks, the ARK Innovation ETF (ARKK) fell 4.2% and the ARK Genomics ETF (ARKG) fell 3.8%.
The SPDR S&P Metals & Mining ETF ( XME ) fell 2.6% and the Global X US Infrastructure Development ETF ( PAVE ) fell 2.2%. The US Global Jets ETF (JETS) fell 3.1%. The SPDR S&P Homebuilders ETF ( XHB ) was down 1.6%. The Energy Select SPDR ETF (XLE) retreated 1.4% and the Health Care Select Sector SPDR Fund (XLV) 1%.
The Financial Select SPDR ETF ( XLF ) plunged 4.1%, with JPM shares, Wells Fargo, Charles Schwab and Bank of America all notable holdings. The SPDR S&P Regional Banking ETF (KRE) plunged 8.2% to a three-year low. SIVB stock is a notable KRE holding, along with KeyCorp and Western Alliance.
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Market rally analysis
The stock rally had a very negative day, with a downward turn that hurt the major indexes and leading stocks.
The S&P 500 opened by rising above its 50-day line, but soon hit resistance at the 21-day moving average and reversed lower to below its 200-day line and the March 2 low.
The Nasdaq first rose above the 21-day line, but then reversed below the 200-day line. The technology-heavy composite briefly fell short of its 50-day mark before settling just above that level.
The Dow Jones dipped below its 200-day mark to a four-month low.
The Russell 2000 decisively fell below its 50-day line, all the way to its 200-day line.
Some leaders held their ground, but most did not.
Banking problems triggered by SIVB shares, Silvergate and KeyCorp do not mean a financial crisis is on the way. Banks, especially giants such as JPMorgan and Bank of America, are far better capitalized than they were in the financial crisis of 2007-2009. But the fact that the words “financial crisis” are even mentioned is a big shift.
If the banks limit lending aggressively, it will quickly hit the wider economy. It will also increase the already high risk that the Federal Reserve will exceed interest rate increases, triggering a hard landing.
Friday’s jobs report will be important, but it’s the market reaction that matters. Remember, if the economy suddenly grinds to a halt, lagging employment data will provide no warning.
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What to do now
With the S&P 500 and other major indexes heading south again, now is not the time to add exposure. Investors should look to cut losses on struggling recent purchases.
Perhaps the market rally will once again find support with a tame jobs report or upcoming inflation data, but hope is not a strategy. The key indices are on the verge of breaking decisively lower.
On the upside, wait for the S&P 500 and Nasdaq to retrace their 21-day lines. If that happens, new buying opportunities will appear. So keep working on those watchlists.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.
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