Fed Hikes, Deutsche Bank in the Crosshairs, Markets Rally Anyway (March 24 Market Recap)
Indices
- Dow 32,237, +376 or +1.17%.
- Nasdaq 11,824, +194 or +1.67%.
- S&P 3,971, +55 or +1.40%.
- USD10Y 3.38%, -1.5bp or –0.44%.
- WTI Crude $69.42/bbl, +$3.04 or +4.56%.
Fed Hikes
As expected, the Fed raised interest rates by a quarter percentage point on Wednesday. Initially markets rallied. However, while Powell was answering questions from the financial press, Treasury Secretary (and former Fed Chair) Janet Yellen was testifying to Congress that there were no current discussions to insure all deposits (above the current FDIC limit of $250,000) for a limited time to further instill confidence in the banking system. Markets reacted negatively to say the least, with all three indices finishing down 1.6% on the day. One thing to note, despite Powell explicitly ruling out rate cuts this year in response to a question, the Fed CME watch tool shows an 83% probability of a rate “pause” at the May 3 meeting, a 25% chance of a 25bp cut after the June 14 meeting and a 58% chance of a 25bp cut after the July 26 meeting.
Deutsche Bank in the Crosshairs
After the three U.S. bank failures (Silvergate Bank, Silicon Valley Bank, and Signature Bank) and the European rescue purchase by UBS of Credit Suisse, investors were left wondering if there were more dominoes to drop. First Republic (FRC) survived another week despite trading down 46.3%. However, in Europe, Deutsche Bank (DB) found itself in the crosshairs. DB traded down 5.5% for the week and its Credit Default Swaps (CDS, which insure bondholders against the bank’s failure) spiked 80bp over the last two days of trading last week as well. JP Morgan defended the bank saying it is on very firm footing and that their deposits are not at risk unlike the Credit Suisse situation. Furthermore, as of this writing on Sunday afternoon, no European Central Bank nor Federal Reserve action has been announced in support of DB. This is good news.
Markets Rally Anyway
Despite the Fed raising rates and the banking crisis, markets had a good week, with all three indices rallying over 1% and oil rallying but remaining under $70/bbl (West Texas Intermediate).
Next Week
Another light economic calendar greets us next week with one notable exception: Friday sees the release of February’s Personal Consumption Expenditure, the Fed’s preferred gauge of inflation. And of course, the banking sector with First Republic and Deutsche Bank sagas will continue to be a focus.
Economic Calendar
- Monday – N/A.
- Tuesday – March Consumer Confidence.
- Wednesday – N/A.
- Thursday – Initial Jobless Claims. Q4 GDP (2nd Revision)
- Friday – February Personal Consumption Expenditure (PCE).
If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
March 24 Daily Trading Recap…
Monday – Dow +382 to 32,244, Nasdaq +45 to 11,675, S&P +35 to 3,951, USD10Y +8.6bp to 3.481%.
- All eleven S&P sectors traded higher today, led by Energy, Materials, and Consumer Staples.
- Markets rose today in a broad-based rally as investors cheered central banks’ efforts to boost confidence in the global banking system. A deal for UBS to rescue ailing Credit Suisse was consummated yesterday and the Federal Reserve announced a U.S. Dollar Swap line to allow foreign banks to implement the same type of Bank Term Funding Program while accepting U.S. dollar dominated collateral.
- First Republic Bank did not participate in the rally as its debt was downgraded on Sunday by the rating agencies deeper into junk status. FRC traded down 47% to $12.18, an all-time low.
- The CME Fed Watch Tool now projects a 76% probability of a 25bp hike on Wednesday.
Tuesday – Dow +316 to 32,560, Nasdaq +184 to 11,860, S&P +51 to 4,002, USD10Y +12.5bp to 3.606%.
- Eight of eleven S&P sectors traded up today, led by Energy, Consumer Discretionary, and Financials.
- Markets rallied on the assumption that while the Fed will likely raise rates by 25 bp tomorrow, that the end of this current rate cycle is nearly upon us, and the Fed’s statement tomorrow will reflect a much more dovish tone.
- The CME Fed Watch Tool probability of a 50bp rate hike tomorrow has now increased to 89.3%.
Wednesday – Dow –530 to 32,030, Nasdaq -190 to 11,670, S&P -66 to 3,937, USD10Y -10.6bp to 3.5%.
- All eleven S&P sectors traded down today, led lower by Real Estate, Financials, and Consumer Discretionary.
- As expected, the Federal Reserve raised interest rates by 25bp but hinted in their statement that this rate hike cycle could be nearing an end.
- While Fed Chair Powell was conducting his press conference, Secretary of the Treasury Yellen was testifying in front of Congress that the administration was not considering blanket insurance of all deposits. This was the news that sunk the markets.
Thursday – Dow +75 to 32,105, Nasdaq +117 to 11,787, S&P +11 to 3,948, USD10Y -9.4bp to 3.406%.
- Nine of the eleven S&P sectors traded down today, led lower by Energy, Utilities, and Financials.
- Jobless claims dipped down to 191,000 vs 197,000 expected and last week’s unrevised print of 192,000. Continuing claims ticked up to 1.69 million.
Friday – Dow +132 to 31,861, Nasdaq +36 to 11,824, S&P +22 to 3,971, USD10Y –2.6bp to 3.38%.
- Nine of eleven S&P sectors traded higher today, led by Utilities, Real Estate, and Consumer Staples.
- February Durable Goods Orders missed at –1.0% vs expectations of –0.3% and last month’s -5.0%.
- March S&P Flash US Manufacturing beat expectations at 49.3 vs expectations of 47 and last month’s 47.3 print.
- March S&P Flash Services PMI beat expectations at 53.8 vs 50.3 and last month’s 50.6 print.
If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.