What to Do When the S&P 500 Breaks Final Support; Elon Musk ‘open’ to buy SVB Financial| Investor’s Business Daily
The stock market suffered heavy losses last week as SVB Finance (SIVB) crashed and eventually collapsed. SIVB share, together with cryptobank Silvergate Financial (SI), triggered intense losses for banking stocks.
West coast financial as e.g First Republic Bank (FRC) and Western Alliance Bancorp (WAL) was particularly hard hit, but Signature bank (SBNY) and Charles Schwab (SCHW) were big losers too. JPMorgan Chase (JPM) found support on Friday.
The major indices sold off hard, breaking several support areas during the week as many leading stocks also came under pressure. Treasury yields plunged, with the pace of Fed rate hikes very much in flux.
Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures.
In the midst of a weak, volatile, uncertain market, investors should not enter new position trades and should mostly or completely hold cash. But keep an eye on stocks that stay close to buy points. Palo Alto Networks (PANW), Facebook parent Meta platforms (META), Ulta beauty (ULTA), Monolithic power systems (MPWR) and United Airlines (UAL) are five stocks showing strength, close to buy points. PANW stock has formed a handle on a long consolidation, while META stock has a new flat base. ULTA stock is finding support at key levels. Monolithic Power is working a long cup with handle while UAL stock has pulled back from a buy zone.
Meanwhile, apple (AAPL) also has a new flat base. Tesla ( TSLA ) sold off hard in the past week, but found support at its 1[ads1]0-week line on Friday. The TSLA stock is far from actionable.
But keep an eye on financials, such as FRC shares, WAL, SBNY and SCHW, as well as XLF Financial ETF and KRE regional bank ETF. But also pay attention to giants like JPMorgan. JPM shares fell sharply last week, but bounced on Friday.
Isolate (PODD) will replace the SIVB share in the S&P 500 before Wednesday’s opening. PODD stock rose Friday night.
PANW stock is on the IBD Leaderboard Watch List. MPWR stock is on the IBD Long-Term Leader’s Watch List. Monolithic Power, United Airlines and ULTA stocks are on the IBD 50. Meta Platforms was Friday’s IBD Stock Of The Day.
The video embedded in this article discussed the market action in depth while also analyzing JPMorgan Chase, Palo Alto Networks and META stocks.
FDIC’s big SVB weekend
Federal Deposit Insurance Corp. and state regulators shut down SVB and Silicon Valley Bank on Friday. Now the FDIC has the weekend to figure out what comes next. Will there be a quick buyer for SVB? Presumably, insured depositors will regain access to their funds on Monday. But what about uninsured deposits?
About 87.5% of Silicon Valley Bank’s $126 billion in deposits as of Dec. 31 exceeded FDIC insurance limits. late friday, Year (ROKU) disclosed that $487 million, or 26% of its cash, is held at SVB, with these deposits “largely uninsured.” ROKU stock fell after hours.
Hundreds of companies, including many venture capital and technology startups, have deposits or business relationships with Silicon Valley Bank.
Tesla CEO Elon Musk tweeted that he is “open to the idea” of Twitter buying SVB and turning it into a digital bank. Musk has said he wants to make Twitter a major payments player.
Dow Jones Futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
Join IBD experts as they analyze leading stocks and market conditions on IBD Live
Weekly action on the stock market
The stock market started higher but quickly reversed lower for heavy losses due to fears of Fed rate hikes and later the closures of SVB Financial and Silvergate.
Twice on Friday, stocks bounced as Treasury Secretary Janet Yellen expressed confidence in a “strained” banking system. But the positive momentum quickly faded.
The Dow Jones Industrial Average fell 4.4% in last week’s trading. The S&P 500 index sold 4.55 percent. The Nasdaq composite fell 4.7 percent. The small-cap Russell 2000 plunged 8%.
Apple shares fell just 1.7% for the week to 148.50, holding above the 200-day line. But that’s after reversing from Monday’s intraday high of 156.30, and nearly hitting AAPL’s 157.48 buy point.
The 10-year Treasury yield fell 29 basis points to 3.69% in the past week, after hitting a 2023 high of 4.09% on March 2. The 2-year yield fell 27 basis points to 4.59%, including 31 basis points on Friday and 48 points Thursday-Friday.
U.S. crude oil futures fell 3.8% to $76.68 a barrel in the past week, but rose on Friday.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) plunged just over 6% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 3.4%. The iShares Expanded Tech-Software Sector ETF (IGV) returned 5.7%. VanEck Vectors Semiconductor ETF (SMH) retreated 3%, with MPWR stock an SMH share.
Reflecting more speculative storied stocks, the ARK Innovation ETF ( ARKK ) plunged 10.9% last week and the ARK Genomics ETF ( ARKG ) 11.4%. Tesla stock is a large holding across Ark Invest’s ETFs. TSLA fell 12.3% for the week, amid new price cuts and safety investigations. But shares rose on Friday.
The SPDR S&P Metals & Mining ETF ( XME ) sold 11.1% last week. The Global X US Infrastructure Development ETF (PAVE) retreated 7.1%. The US Global Jets ETF (JETS) was down 4.8, with UAL stock a key component. The SPDR S&P Homebuilders ETF (XHB) was down 4.85%. The Energy Select SPDR ETF (XLE) returned 5.3%. The Health Care Select Sector SPDR Fund ( XLV ) fell 3.85% to its lowest point since October.
The Financial Select SPDR ETF ( XLF ) plunged 8.5%, and JPMorgan and SCHW have large holdings. The SPDR S&P Regional Banking ETF (KRE) fell 15.7%, the worst weekly loss since the Covid crash in March 2020. The SIVB share and Western Alliance are key components.
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Market analysis
The stock market suffered damaging losses over the past week, with the major indexes selling off hard and breaking through multiple support levels. The indexes tried to recover from early losses on Friday, briefly turning positive, before falling to new lows.
The S&P 500, Nasdaq Composite and Russell 2000 tumbled through their 21-day lines early in the week and ended decisively below their 50-day and 200-day moving averages. The S&P 500 and Russell 2000 ended Friday below the end of the follow-up day on January 6.
The Dow Jones is at its worst levels since early November.
Fed chief Jerome Powell’s signal that he favors “faster” rate hikes hit the market on Tuesday-Wednesday. But SVB Financial and the crypto bank Silvergate Capital shook up the banks late in the week.
A rebound attempt on Friday morning broke when the FDIC announced SVB Financial’s failure.
If fears of bank contagion grow, it will be sad for Wall Street and the economy. But if SVB Financial’s problems are seen as isolated and broader banking fears quickly dissipate, it could restore overall confidence in the market. But it is also likely to push Treasury yields and the dollar higher, and the odds of Fed rate hikes also increase.
The odds of a half-point Fed rate hike rose from 30% on Monday to over 80% after Fed Chairman Powell’s testimony, then fell back to below 40% on Friday.
All this uncertainty increases the fear of a hard landing, either via a banking crisis or because the Fed overshoots rate hikes.
Leading stocks also sold off hard. A number of names held their own for much of the week, but most of them struggled at Friday’s end.
Until Thursday, Friday’s jobs report and the upcoming CPI inflation report on March 14 seemed like big events. And they are still important. Relatively tame CPI inflation could give Fed chief Powell and his colleagues the excuse they need to raise interest rates by just a quarter of a point.
But in the very short term, Wall Street is likely to take its cue from the banking sector. So pay attention to the banks, from recent biggest losers like First Republic to broad ETFs and relative stalwarts like JPM shares.
JPMorgan was the S&P 500’s second-best performing stock on Friday, although SBNY, First Republic and Schwab were the worst performers. It’s a sign that investors see JPMorgan as relatively safe. However, if JPM stock breaks last week’s low, it would be worrisome.
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What to do now
The stock market is selling off hard amid bad news and even greater uncertainty.
This is not a healthy environment. Investors should mostly or completely stand on the sidelines and wait to see how this shakes out. If conditions improve within a few days or weeks, new buying opportunities will arise.
Build your watchlists focusing on stocks that show strong relative strength. If they are near potential buy points like META shares, Monolithic Power or Palo Alto, great. But that is not the priority now.
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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