Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures. The FDIC and other regulators are trying to contain the damage from last week’s collapse of SVB Financial with the goal of giving depositors access to funds by Monday morning. An auction for Silicon Valley Bank is reportedly taking place now.
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The stock market suffered heavy losses last week as SVB Financial (SIVB) and cryptobank Silvergate Financial (SI), triggered intense losses for bank stocks.
West coast finance such as First Republic Bank (FRC) and Western Alliance Bancorp (WAL) was particularly hard hit, but Signature Bank (SBNY) and Charles Schwab (SCHW) were also big losers. JPMorgan Chase (JPM) found support on Friday.
The major indexes sold off hard and broke several support areas during the week as many leading stocks also came under pressure. Treasury yields fell, with the pace of Fed rate hikes fluctuating widely.
In the midst of a weak, volatile, uncertain market, investors should not enter new position trades and instead hold mostly or all cash. But keep an eye on stocks that are holding 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 on a long cup with handles, while UAL shares have pulled back from a buy zone.
In the meantime Apple (AAPL) also has a new flat base. Tesla ( TSLA ) sold off hard last week, but found support at its 10-week line on Friday. 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. Also, pay attention to well-capitalized giants like JPMorgan. JPM stock fell sharply last week but bounced on Friday.
Isolate ( PODD ) will replace SIVB stock in the S&P 500 before Wednesday’s open. PODD stock rose on Friday night.
PANW stock is on the IBD Leaderboard watch list. MPWR shares are on the IBD Long-Term Leaders Watch List. Monolithic Power, United Airlines and ULTA stock 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 races to limit SVB financial fallout
Federal Deposit Insurance Corp. and state regulators on Friday shuttered SVB Financial and its Silicon Valley Bank subsidiary, the biggest bank failure since Washington Mutual during the 2008 financial crisis.
The FDIC started an auction Saturday night for Silicon Valley Bank, with final bids due Sunday afternoon, Bloomberg reported Sunday, citing sources. A winner may not be known until Sunday evening.
Treasury Secretary Janet Yellen said Sunday that the FDIC and other regulators are seeking to resolve the SVB situation “in a timely manner.” She said the government will help depositors but will not offer a bailout to investors.
The FDIC hopes to make at least a portion of uninsured deposits available Monday morning, Bloomberg reported Saturday.
About 87.5% of Silicon Valley Bank’s $126 billion in deposits per December 31 exceeded FDIC insurance limits. late friday, Year (ROKU) revealed that $487 million, or 26% of its cash, is held at SVB, with those deposits “largely uninsured.” ROKU stock fell after hours.
Etsy ( ETSY ) said Saturday it could not pay sellers because of funds tied to Silicon Valley Bank.
Hundreds of companies, including many venture capital and technology startups, have deposits or business relationships with Silicon Valley Bank. There are reports that many will struggle to meet payroll without access to accounts soon.
If the FDIC does not resolve SVB Financial quickly and reassure all depositors, several banks with technology exposure could face problems, including Western Alliance, First Republic and Signature Bank.
The FDIC and the Federal Reserve are considering creating a fund to freeze deposits if more banks run into trouble, Bloomberg reported.
After the financial crisis, legislation increased capital requirements and much more on banks, but it also limited the ability of regulators to rescue individual financial institutions.
Although all depositors are protected, bank stocks and debt holders are unlikely to be.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.
Dow futures may open with a lot of questions about SVB Financial, but have few answers. Vulnerable bank stocks may continue to drive the overall market action, but they won’t start trading until Monday morning.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze leading stocks and market conditions on IBD Live
Stock market weekly action
The stock market started higher but quickly turned lower for heavy losses due to Fed rate hikes and later the SVB Financial and Silvergate closures.
Twice on Friday, stocks rose as Treasury Secretary Janet Yellen expressed confidence in a “robust” 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 per cent. The Nasdaq composite slipped 4.7 per cent. The small-cap Russell 2000 plunged 8%.
Apple shares fell just 1.7% for the week to 148.50, holding above its 200-day line. But that’s after reversing from Monday’s intraday high of 156.30 that nearly hit 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 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 ) fell just over 6% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 3.4%. The iShares Expanded Tech-Software Sector ETF ( IGV ) gave up 5.7%. The VanEck Vectors Semiconductor ETF ( SMH ) retreated 3%, with MPWR shares an SMH holding.
As a result of more speculative stock stocks, the ARK Innovation ETF ( ARKK ) fell 10.9% last week and the ARK Genomics ETF ( ARKG ) fell 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 off 11.1% last week. The Global X US Infrastructure Development ETF ( PAVE ) fell 7.1%. The US Global Jets ETF (JETS) fell 4.8, with UAL stock a key component. The SPDR S&P Homebuilders ETF (XHB) fell 4.85 percent. The Energy Select SPDR ETF (XLE) gave up 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%, with JPMorgan and SCHW major holdings. The SPDR S&P Regional Banking ETF (KRE) plunged 15.7%, its worst weekly loss since the Covid crash in March 2020. SIVB shares and Western Alliance are notable components.
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Market analysis
The stock market suffered damaging losses in the past week, with the major indexes selling off hard and breaking through multiple support levels. The indices tried to bounce back from early losses on Friday, turning positive briefly before falling to fresh lows.
The S&P 500, Nasdaq composite and Russell 2000 tumbled through their 21-day lines early in the week and finished decisively below their 50-day and 200-day moving averages. The S&P 500 and Russell 2000 ended Friday below the close of the follow-up day on January 6.
The Dow Jones is at its worst level since early November.
Fed chief Jerome Powell’s signal that he favors “faster” rate hikes hit the market Tuesday-Wednesday. But SVB Financial and crypto bank Silvergate Capital shook up the banks late in the week.
A rebound attempt on Friday morning fizzled when the FDIC announced the failure of SVB Financial.
If fears of bank contagion grow, it would be bleak 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 general market confidence. But it is also likely to push Treasury yields and the dollar higher, with Fed rate hikes also on the rise.
Odds for a half-point Fed rate hike rose from 30% on Monday to over 80% after Fed chief Powell’s testimony, then fell back to below 40% on Friday.
All this uncertainty adds to the fear of a hard landing, either via a banking crisis or because the Fed overshoots rate hikes.
SVB Financial had large unrealized losses on bonds as interest rates have risen sharply due to Fed rate hikes over the past year. That’s a concern for other regional banks and their investors.
Leading stocks were also sold hard last week. A number of names held up for most of the week, but most of them struggled at Friday’s close.
Until Thursday, Friday’s jobs report and the upcoming March 14 CPI inflation report seemed like big events. And they are still important. Relatively tame CPI inflation may give Fed Chair 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 will probably start from the banking sector. So pay attention to banks, from the biggest recent 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 stocks were the worst performers. That’s a sign that investors see JPMorgan as relatively safe. But if JPM stock breaks last week’s lows, that would be worrying.
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What should I do now
The stock market is selling off hard due to bad news and even greater uncertainty.
This is not a healthy environment. Investors should largely or completely sit on the sidelines and wait to see how this shakes out. If conditions clear up in a few days or weeks, new buying opportunities will arise.
Build your watch lists focusing on the stocks showing strong relative strength. If they are close to potential buy points like META stock, Monolithic Power or Palo Alto, great. But that is not the priority right now.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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