Weekly Market Vibes

Market Recap

WEEK OF MAR. 13 THROUGH MAR. 17, 2023

The Dow Jones Industrial Average finished the week down 47.67 points (0.15%) at 31,861.98, the S&P 500 Index was up 55.05 points (1.43%) at 3,916.64, and the Nasdaq Composite was up 494.62 points (4.41%) to 11,630.51.

On Friday March 17, 2023, WTI crude oil lost $1.61 to $66.74 per barrel. Elsewhere, the gold spot price climbed $58.70 to $1,981.70 per ounce, and the Dollar Index went down 0.5% to 103.90.

The banking sector remained in focus in the wake of Thursday's report that some of the nation’s largest banks have agreed upon a plan to deposit as much as $30 billion in an attempt, supported by the U.S. government, to stabilize First Republic Bank (FRC $23). The deal comes after Bloomberg reported that the struggling bank may be exploring strategic options that include a sale and weighing options for shoring up its liquidity. The company acknowledged the support from the consortium after updating its financial position late Thursday. The turmoil has fostered severe volatility in the markets and fueled concerns about contagion in the financial markets. Meanwhile, the Treasury Department, the Fed and Federal Deposit Insurance Corporation (FDIC) have enacted several measures to contain the issue.

The turbulence originated in the U.S. banking sector after the failures of SVB Financial Group (SIVB), and crypto-related Silvergate Capital Corp. (SI), and the closure of Signature Bank (SBNY) in the past week. The anxiety made its way across the pond as Credit Suisse Group AG's (CS $2) top shareholder, the Saudi National Bank, said it will not provide more capital assistance. However, the lender announced that it will borrow $54 billion from the Swiss National Bank.

In other equity news, FedEx Corporation (FDX $220) reported adjusted fiscal Q3 earnings-per-share (EPS) of $3.41, above the $2.71 FactSet estimate, as revenues fell 5.9% year-over-year (y/y) to $22.2 billion, versus the Street's forecast of $22.7 billion. The package delivery and logistics company cited success in its cost-cutting measures offset continued weakness in demand. FDX reiterated its plans to make cost reductions of more than $4 billion by the end of fiscal year 2025. As such, it upped its full-year 2023 EPS guidance to a range of $14.40 and $15.20, compared to the Street's forecast of $13.56. Shares were sharply higher.

Leading Index and consumer sentiment fall, industrial production unchanged

The Federal Reserve's industrial production came in flat month-over-month (m/m) in February, compared to estimates of a 0.2% gain, and versus January’s positively revised 0.3% reading. Manufacturing output rose, offset by a decline in mining and utilities production. Capacity utilization remained at the prior month's downwardly revised rate of 78.0%, versus estimates of a slight increase to 78.4%. Capacity utilization is 1.6 percentage points below its long-run average.

The Conference Board's Leading Economic Index (LEI) for February fell 0.3% m/m, matching the Bloomberg consensus estimate and January's unrevised decline. The index recorded its eleventh consecutive monthly loss, as ISM new orders, consumer expectations, the yield curve, jobless claims, and credit conditions were the negative contributors, more than offsetting positive contributions from building permits and stock prices.

The preliminary University of Michigan Consumer Sentiment Index for March showed that sentiment surprisingly decreased, falling to 63.4 from February's final reading of 67.0, and where it was expected to remain. A solid decline in the current conditions portion of the index joined a slight decrease in the expectations component of the report. The 1-year inflation forecast fell to 3.8% from 4.1% in February, and the 5-10-year inflation outlook nudged lower to 2.8% from the prior month's 2.9% rate.

Treasury rates remained under pressure, as the yield on the 2-year note dropped 31 basis points (bps) to 3.82%, the yield on the 10-year note declined 16 bps to 3.41%, and the 30-year bond rate decreased 9 bps to 3.62%.

Bond yields have been under pressure as the markets wrestle with uncertainty regarding if the Fed may change its tightening campaign a bit sooner than expected in the wake of the recent turbulence in the banking sector.

Next week's economic calendar will be a bit lighter than this week. However, its magnitude is of importance, as the headlining event will likely be the Federal Open Market Committee's (FOMC) monetary policy decision set for Wednesday, March 22. With the turmoil in the banking sector over the past week, the notion has been floated that the FOMC could possibly pause its rate hike campaign, but expectations are for a 25-bp rate hike. Economic projections and the Fed's "dots plots"—a gauge of committee members' forecasts of future rate actions—that will be released with the central bank's announcement are also likely to garner heightened scrutiny. More housing data is on tap via the existing home sales and new home sales reports, as well as the weekly read on MBA Mortgage Applications. Other reports slated for release include the Kansas City Fed Manufacturing Index, initial jobless claims for the week ended March 18, and preliminary reads on durable goods orders, as well as March manufacturing and services activity from S&P Global.

Europe fell as banking crisis fears return

Stocks in Europe were lower, erasing most of yesterday's rebound, as the disorder in the banking sector continued. The moves came despite the disclosure of an aid package for First Republic Bank, which followed Credit Suisse's announcement that would be able to borrow up to $54 billion from the Swiss National Bank, after its largest shareholder said it will not provide further capital assistance. The banking sector has come under pressure recently and has caused some investors to speculate that the Fed may pause its aggressive rate hike campaign next week. However, on Thursday the European Central Bank moved forward with a 50-bp increase, noting that "inflation is projected to remain too high for too long," but adding that it is monitoring current market tensions closely and stands ready to respond as necessary to preserve price and financial stability.

On Friday March 17, 2023, the U.K. FTSE 100 Index was down 0.9%, France's CAC-40 Index fell 1.4%, Germany's DAX Index lost 1.3%, Italy's FTSE MIB Index declined 1.6%, Spain's IBEX 35 Index dropped 1.9%, and Switzerland's Swiss Market Index traded 1.1% lower.

Asia higher in footsteps of U.S. gains

Stocks in Asia were higher across the board, as jitters surrounding the recent turmoil in the U.S. banking sector eased some following the announcement of a rescue package for First Republic Bank. However, uncertainty persists regarding the ultimate impact on the global financial market system. The turmoil has also caused some speculation that this may prompt the Fed to back off of its aggressive monetary policy campaign. Meanwhile, the European Central Bank went ahead with a rate increase yesterday, while the Bank of Japan (BoJ) left rates unchanged, as widely expected last week.

On Friday March 17, 2023 Japan's Nikkei 225 Index rose1.2%, with the yen rising versus the U.S. dollar. China's Shanghai Composite Index increased 0.7%, and the Hong Kong Hang Seng Index gained 1.6%. Meanwhile, Australia's S&P/ASX 200 Index nudged 0.4% higher, South Korea's Kospi Index advanced 0.8% and India's BSE Sensex 30 Index traded 0.6% higher.

Next week's international economic calendar will include a host of manufacturing and services PMIs from across the globe, as well as: China—1-year and 5-year Loan Prime Rates. Australia—Leading Index. Japan—department store sales and PPI. Eurozone—consumer confidence, along with German PPI, as well as the nation's ZEW Economic Sentiment Survey. U.K.—public sector net borrowing, CPI, PPI, Retail Price Index, and retail sales. In central bank action, the Bank of England will announce its monetary policy decision.

The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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