Dow Jones futures fell slightly after hours 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 banking stocks that sent a blow to the broad market on Thursday.
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Oracle (ORCL) and Ultimate beauty (ULTA) reported earnings late.
Stock markets’ rally turned sharply lower on Thursday as questions about banks’ financials suddenly came to the fore. The S&P 500 and Nasdaq fell to critical support levels.
Bank shares plummeted like SVB Financial (SIVB), the parent company of Silicon Valley Bank, collapsed on a string of negative headlines while a long-ill crypto bank Silvergate capital (SI) said it would stop. bank of America (BAC), JPMorgan Chase (J.P.M.), Wells Fargo (WFC) and Karl Schwab (SCHW) were among the high-profile losers.
SIVB shares continued to fall late as fears of a bank run mounted.
Investors should err on the side of caution and wait for the market rally to show renewed strength.
Main income
ORCL shares fell 4% in late trading after outpacing Oracle earnings, but earnings lagged. Oracle shares fell 5.9% to 81.75 on Thursday, falling below the 50-day mark. Stocks have been working to a buy point of 91.32 from a deep cup with handle.
ULTA stock fell 2% in extended action. Ulta Beauty’s earnings and earnings beat views, but same-store guidance was light. The beauty retail giant fell 0.8% on Thursday to 519.93, just below its 21-day line. ULTA stock has no clear buying point.
Jobs report
The Labor Department releases its February jobs report at 8:30 a.m. ET. Economists expect nonfarm payrolls to rise by 223,000, a big slowdown from January’s 517,000, but that would still be a strong start to the year in two months. The unemployment rate should remain at a 53-year low of 3.4%. The average hourly wage should increase by 0.3%, but the annual wage increase should increase to 4.7%.
On Thursday, Labor reported that initial jobless claims had risen more than expected to the highest number since December. Challenger, Gray & Christmas reported that announced layoff plans are the highest since 2009.
February’s jobs report, along with next week’s CPI inflation report, could sustain expectations for a half-point rate hike on March 22.
Dow Jones Futures Today
Dow Jones futures fell 0.3% from fair value. S&P 500 futures fell 0.4% and Nasdaq 100 futures fell 0.4%.
The 10-year Treasury yield fell 4 basis points to 3.88%. The 2-year rate fell by 9 basis points to 4.81%.
February’s jobs report is sure to tip Dow Jones futures, Treasury yields and expectations for Fed rate hikes.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
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Stock market rally
Equity markets’ rally started well on Thursday on rising jobless claims, but quickly turned lower on concerns about banks. Major indices steadily deteriorated and closed near session lows.
The Dow Jones Industrial Average fell 1.7% during Thursday trading. The S&P 500 index fell 1.85%, with SIVB stocks, Bank of the First Republic (FRC) and Schwab the biggest losers. The Nasdaq composite fell 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 Treasury yield fell 5 basis points to 3.92%. The two-year Treasury yield fell 16 basis points to 4.9%, while the six-month T-bill yield fell 3 basis points to 5.28%.
Expectations for a rate hike by the Fed did not change much.
Markets see a 64% chance of a 50 basis point move on March 22, down from Wednesday’s 78.6%. The odds jumped from about 30% before Fed Chief Jerome Powell’s aggressive testimony on Tuesday. Markets are now pricing in 100 basis points of rate hikes for the next three Fed meetings, with a fair chance of more later in the year.
Bank shares
SIVB shares plummeted 60% to 106.04, the lowest price since 2016. SVB Financial announced a $1.75 billion share sale late Wednesday. Silicon Valley Bank’s parent company also cut guidance. Deposits are dwindling as startups face a funding gap. There are also great concerns about SVB’s loans to the tech industry.
SIVB shares plummeted 22% overnight in volatile, heavy trading. Peter Thiel’s Founders Fund advises companies to raise money from Silicon Valley Bank, Bloomberg reports. SVB Financieel has yet to price that share issue.
Silvergate Capital, which has been in freefall for months, announced late Wednesday that it would close, liquidating Silvergate Bank. SI shares fell 42%.
The SVB and Silvergate news undermined the financial numbers, which were already under pressure as the extreme inverted yield curve is upsetting the traditional short-lending/lending-long-lending strategy.
Key Corp (KEY), which warned about net interest margins earlier this week, fell 7.2% on Thursday. Bancorp of the Western Alliance (WAL) fell nearly 13% and FRC shares fell 16.5%.
JPM shares fell 5.4%. On Tuesday, JPMorgan fell below a buy point of 138.76 and its 50-day line. BAC shares fell 6.2% to their lowest level since October. WFC shares also lost 6.2% and fell below the 200-day mark after falling below the 50-day mark earlier this week.
SCHW shares fell 12.8%, below the 200-day line and the base low. JPMorgan offered a block sale of 8.5 million Schwab shares, Bloomberg reported. SCHW shares are at their worst level since October.
Investors will take a much closer look at banks’ books and capital levels, something that hasn’t really been a concern until now. Banks significantly raise deposit and CD rates, while long-term rates lag. Many banks are facing significant unrealized losses on loans and other securities.
If banks restrict lending, it could quickly cool the economy. Meanwhile, the woes of SVB Financial and Silvergate Capital are raising concerns about their technology and crypto clients.
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 stocks a major IGV component. The VanEck Vectors Semiconductor ETF (SMH) lost 1.9%.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) fell 4.2% and ARK Genomics ETF (ARKG) fell 3.8%.
SPDR S&P Metals & Mining ETF (XME) lost 2.6% and the Global X US Infrastructure Development ETF (PAVE) lost 2.2%. US Global Jets ETF (JETS) fell 3.1%. SPDR S&P Homebuilders ETF (XHB) fell 1.6%. The Energy Select SPDR ETF (XLE) lost 1.4% and the Health Care Select Sector SPDR Fund (XLV) lost 1%.
The Financial Select SPDR ETF (XLF) plunged 4.1%, with JPM stocks, Wells Fargo, Charles Schwab and Bank of America all notable positions. The SPDR S&P Regional Banking ETF (KRE) plunged 8.2% to a three-year low. SIVB Shares is a notable KRE holding company along with KeyCorp and Western Alliance.
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Analysis of the market rally
The stock market rally had a very negative day, with a downward reversal hurting major indices and leading stocks.
The S&P 500 opened by rising above its 50-day line, but soon ran into resistance at the 21-day moving average and bounced back below its 200-day line and its March 2 low.
The Nasdaq initially rose above its 21-day line, but then reversed below the 200-day line. The tech-heavy composite briefly paused its 50 days before settling just above that level.
The Dow Jones plunged below the 200-day line to a four-month low.
The Russell 2000 fell decisively below the 50-day line, all the way to the 200-day line.
Some leaders survived, but most did not.
Banking worries caused by SIVB stock, Silvergate and KeyCorp do not mean a financial crisis is on its way. Banks, especially giants like JPMorgan and Bank of America, are much better capitalized than they were during the financial crisis of 2007-2009. But the fact that the words “financial crisis” are even mentioned is a major shift.
If banks aggressively curb lending, it would quickly hit the wider economy. That would also increase the already significant risk that the Federal Reserve will overshoot rate hikes too quickly, triggering a hard landing.
Friday’s jobs report will be important, but what matters is the market’s reaction. Keep in mind that if the economy suddenly grinds to a halt, the lagging employment numbers offer no warning.
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What to do now
With the S&P 500 and other major indices heading south again, now is not the time to add exposure. Investors should try to limit losses on recent struggling purchases.
Perhaps the market rally will find support again with a weak jobs report or upcoming inflation data, but hope is not a strategy. Major indices are about to break decisively lower.
On the upside, wait for the S&P 500 and Nasdaq to recapture their 21-day lines. When that happens, new buying opportunities arise. 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 market updates and more.
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