The Fuse
Equity futures are down but well off their lows. Overnight saw the ES futures drop well below 3900 but has managed to rally back thanks to a drop in interest rates. The Silicon Valley Bank situation is a new ‘black swan’ that is permeating through financial markets. Will it be damaging to other banks, liquidity and create a crisis? That possibility is there, this bank lends to small startups but yesterday said they will have to sell stock to raise capital, covering losses.
You wouldn’t know it, but the Dow Industrials are down more than 1000 points this week, about 3%. That is quite the selloff, the SPX 500 is down roughly 4% from it’s highs on Monday. That is pretty extreme, but we finally did see a big rise in volatility, sparked by some bank worries.
Silicon Valley Bank, a financier of startups was pasted yesterday, dropping some 60% on swelling volume. The news here was the bank was seeking to sell stock, raise money to cover losses it sees coming down the pike. That would be normal during a recession, we often see small companies have trouble raising capital during these times. Banks were clobbered along with tech, we’ll see if there is followthrough. KRE, KBE and XLF had their biggest one day drops in year.
Oracle reported strong earnings last night but missed revenue estimates. They cited slowing growth in cloud.
The big jobs report is out this am, and if there is a whiff of inflationary pressure the markets will not like it.
Breadth was horrendous yesterday, more than 6-1 negative and put/calls were rising as well – third straight session. This bear market rages on, but just in a different phase.
Volume swelled on the day as sellers took command and pushed the markets down towards some strong support levels. If those do not hold however, there will be much more downside to go.
As we mentioned yesterday morning, the markets were looking rather tired and due for rest. Who knew that Chair Powell was going to knock the legs out from under the bulls.
What’s it mean?
After a mostly benign Wednesday, markets took it on the chin Thursday. Look at the VOLD, ADD and ADSPD managed to close at their lows. It was an avalanche of selling, put/calls were elevated while the VIX pushed up more than 17%. These are extreme on the internals, something to watch carefully.
The Dynamite
Economic Data:
- Friday:non-farm payroll report
Earnings this week:
- Friday: BKE
Fed Watch: Fed funds futures plunged the last couple days, with nearly at 73% chance of a 50bp hike at the March 22 meeting. That number has backed off slightly, but still more than 50% chance. The market is starting to slightly price in 6% rates sometime later in the year.
Stocks to Watch
Name – SPX 500 – Can the index hold 3900 by the end of the week?
Name – Oracle (ORCL), earnings last night – will it follow in the footsteps of CRM (up) or MSFT (down)?
Name – Volatility index – huge rise as fear started to rise up with uncertainties around banks.
