The stock market struggled to hold early sell-off lows Wednesday lunchtime. Government bond yields fell thereafter CreditSuisse (CS) stock plummeted amid the latest chapter of the banking crisis.
The S&P 500 fell more than 1.5% but was still trading above Monday’s low. Year-to-date gain is almost gone, down to less than 1%.
The Nasdaq Composite, which has a modest 4% exposure to financials, pared its loss to 0.9% as selling spread to technology, healthcare and almost every other S&P sector except utilities.
Financials hurt the Dow Jones Industrial Average again, sending the megacap index down 1.8%. The Russell 2000 led the decline, losing 2.7%.
Volume on the NYSE and Nasdaq increased compared to the same time on Tuesday.
The 10-year government bond yield fell 23 basis points to 3.41%. Investor fear, as measured by the Cboe Market Volatility Index, or VIX, rose 18% to 28.
Oil price falls below $70, sector rolls
U.S. crude fell 6.7% to below $66.50 a barrel at midday amid mounting concerns of a global recession. Energy Select Sector SPDR (XLE) was the underperforming sector ETF, down 4.6%.
Since December, the price of US crude oil has fluctuated in a range between USD 70 and USD 80 per barrel.
However, the energy ETF is showing weaker action. Energy Select Sector fell below the 200-day moving average this week and the chart is showing a pattern of lower highs and lower lows since late January.
There is no clear support level until maybe 68, where the ETF bottomed in September.
Among the deteriorating oil stocks are oilfield service providers tidal water (TDW), SLB (SLB) and Halliburton (HAL) decay. A breakout for International Sea Routes (INSW) seems to fail.
But in a research note today, Wells Fargo sounded bullish on oil prices.
“Overall, despite the expected recession, we believe tight supply, China’s reopening and the impact of the commodity bullish super cycle will support higher oil prices, which will most likely be seen in the second half of 2023,” said strategist John LaForge and Mason Mendez wrote in a report.
European stock market: Credit Suisse revives fears of contagion
The banking crisis took a turn for the worse overnight. The governor of the Saudi National Bank, Credit Suisse’s largest shareholder, has declined additional financial aid. And on Tuesday, Credit Suisse released its belated annual report, which warned of “material weaknesses” in its financial controls.
CEO Axel Lehmann said on Wednesday that capital and the balance sheet remain strong. Zürcher Bank has been struggling with several problems for months. U.S. traded shares plunged 22% to 1.95 at midday and have been below $10 a share for more than a year.
The European stock markets collapsed. Paris’ CAC 40 slipped 3%, while London’s FTSE 100 fell 3.1% and Germany’s DAX lost 2.6%. The major Asian markets avoided the bad news and closed higher.
Regional bank stocks remain under pressure as depositors look for perceived safer places to invest their money. The SPDR S&P Regional Bank ETF (KRE) pared its loss to 1.2%.
Banks in today’s stock market significantly lower
Among the major US banks JPMorgan Chase (JPM) fell 4.7%. Wells Fargo (WFC) lost 4.5%, Bank of America (BAC) 1.5%, Bank of New York Mellon (BK) 3.9% and Citigroup (C) 5%.
The SPDR S&P Bank ETF (KBE) lost 2% and is down 10% on the week.
Innovator IBD 50 ETF (FFTY), which has no exposure to financials, was still down 3.1%. Two components appeared to be in trouble.
Supplier of industrial and electronic parts Wesco International (WCC) fell below its 50-day moving average, erasing a gain of almost 20% from its buy point of 147.15. This is a sell signal.
Hyatt hotels (H) is down 4.5% and is trading below the 50-day moving average. It has given up gains from a buy point of 108.20 and is back near a handle entry of 103.60.
Stock market today: Inflation data cools
Credit Suisse’s woes overshadowed an encouraging inflation report.
The February Producer Price Index (PPI) fell 0.1% mom and rose 4.6% on a yearly basis. Both were below economists’ forecasts. Core wholesale prices, which exclude food and energy, also slowed more-than-expected, flat on the month and up 4.4% on the year.
But somewhat dampening, US retail sales fell 0.4% in February. Economists had forecast a 0.3% month-on-month decline. Ex-vehicle sales fell 0.1% versus estimates for a 0.2% increase.
The latest data suggests the Fed is on hold on rate hikes.
“While the market is under pressure this morning due to Credit Suisse’s ongoing woes, the specific inflation-related news should help reassure the Fed that its inflation-suppression campaign is on the right track,” said Quincy Krosby, chief global strategist for LPL Financial.
And the slowdown in retail spending “is a necessary component to bring inflation closer to the Fed’s final rate,” Krosby added. Taken together, the data should reinforce the likelihood of a 25 basis point rate hike next week, if the Fed hikes at all.
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