Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, amid a divided market rally. UBS agreed to buy Credit Suisse on Sunday, with the Swiss government offering loss guarantees and hefty liquidity assistance. Bank contagion fears are high in the U.S. and Europe, with First Republic still in the crosshairs. The Federal Reserve meeting looms with the rate hike outcome and outlook very much in flux.
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A stock market rally attempt is underway, but there is a clear divergence. The Nasdaq, led by Microsoft (MSFT), Meta Platforms (META), Nvidia (NVDA) and Advanced Micro Devices (AMD), surged above its 50-day and 200-day lines, even with Friday’s pullback. Many chip stocks are near buy points.
Meanwhile the other indexes are being weighed down by bank and commodity stocks. The S&P 500 rose modestly, but couldn’t hold key support Friday. The Dow Jones edged lower while the Russell 2000 tumbled.
Banks remain in focus with industry giants and regulators scrambling to contain the crisis.
The Fed’s Tuesday-Wednesday policy meeting will try to balance banking woes with fighting inflation. Fed funds futures have swung wildly over the past week, but markets currently are leaning toward a modest rate hike.
A news-driven, volatile, divided market rally attempt amid a possible banking crisis is not exactly an ideal situation. Investors should be cautious. But a number of growth stocks have been flashing buy signals.
UBS Buys Credit Suisse
UBS (UBS) will buy fellow Swiss giant Credit Suisse (CS) for 3 billion Swiss francs ($3.24 billion). Credit Suisse closed Friday with an $8 billion market cap. Some $17 billion in Credit Suisse bonds will be wiped out.
UBS plans to downsize Credit Suisse’s investment banking arm. It sees over $8 billion in cost cuts by 2027, with thousands of jobs at risk.
UBS will get a government guarantee on Credit Suisse losses of up to 9 billion CHF ($9.7 billion)
The Swiss National Bank said UBS and CS have “unrestricted access” to its existing facilities. The banks also can get a liquidity assistance loan of up to 100 billion Swiss francs ($108 billion).
Switzerland’s president said deposit outflows on Friday made it clear that stabilizing Credit Suisse was necessary, despite $54 billion in liquidity loans from the SNB on Thursday. The finance minister said a Credit Suisse default would have had “grave consequences” for the global financial system.
Treasury Secretary Janet Yellen and Fed chief Jerome Powell said in a joint statement that they “welcome” the Credit Suisse deal, while also expressing confidence in the “resilient” U.S. financial system.
The big question is how global markets, from Dow Jones futures, Treasuries, commodities to overseas markets and bank stocks broadly, respond to the UBS-Credit Suisse deal.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
That’s especially true during market turmoil. Dow futures, bond yields and more could whipsaw into Monday’s open or signal a big move in one direction only to see markets reverse course during New York trading.
First Republic Stock Sale?
First Republic Bank (FRC) was looking to raise cash via a private stock sale to other banks or private-equity firms, the New York Times reported late Friday. FRC stock tumbled 15% after hours.
Notably, SVB Financial’s March 8 bid to raise cash via securities sales helped trigger its final collapse. But regulators and other banks will likely be keen to avoid that.
Moody’s downgraded First Republic to junk late Friday, following similar moves by S&P Global and Fitch earlier in the week. S&P reportedly is set to cut First Republic deeper into junk soon.
There is widespread speculation that First Republic is seeking a buyer.
On Thursday, JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C) and 10 other big banks announced they would deposit $30 billion in First Republic.
FRC stock bounced 10% Thursday on that news, but the bank stock crashed 72% for the week, including a 33% dive on Friday.
Other Bank News
The Fed and other global central banks expanded dollar swap operations on Sunday, aiming to expand liquidity.
The Biden administration has been in talks recently with Warren Buffett regarding the regional bank crisis, Bloomberg reported Saturday. The discussions have focused on Buffett possibly investing in regional banks, but he’s also given advice. Buffett bought $5 billion in Goldman Sachs stock during the height of the financial crisis in October 2008, and later bought preferred shares in BofA when it was struggling in 2011.
The FDIC reportedly is moving toward selling Silicon Valley Bank in pieces after struggling to find a buyer.
New York Community Bancorp (NYCB) is interested in buying Signature Bank, Bloomberg reported Sunday. The FDIC could announce a deal this week, but talks are still ongoing.
Pacific Western Bank, the subsidiary of PacWest Bancorp (PACW) said Friday night that it still has “solid liquidity” with over $10.8 billion in unavailable cash. That total exceeds uninsured deposits.
Sen. Elizabeth Warren, D-Mass., said she favors lifting the FDIC deposit insurance cap from $250,000 into the millions of dollars. A mid-size banking group has urged regulators to guarantee all uninsured deposits for two years.
Stocks To Watch
Chip stocks remain clear market leaders. On Semiconductor (ON), Aehr Test Systems (AEHR), Mobileye (MBLY), Applied Materials (AMAT), GlobalFoundries (GFS), Monolithic Power Systems (MPWR) and STMicrolectronics (STM) are all near potential buy points or early entries. All have relative strength lines at or near highs.
Tesla (TSLA) continues to consolidate, holding support and facing resistance at several key levels.
Pinduoduo parent PDD Holdings (PDD) reports earnings Monday before the open along with Foot Locker (FL). Both PDD and FL stock are near potential early entries around their 50-day lines.
MPWR stock is on SwingTrader. Monolithic Power Systems, STMicro, Mobileye and ON stock are on the IBD 50. Monolithic Power, MBLY stock and AMAT stock are on the IBD Big Cap 20.
The video embedded in this article reviewed the weekly market action in depth and analyzed AEHR stock, PDD and Lennar (LEN).
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally had a wild week, starting off with sharp losses Monday morning, bouncing back with whipsaw action before finishing with further losses.
The Dow Jones Industrial Average dipped 0.2% in last week’s stock market trading. And the S&P 500 index rose 1.4%. The Nasdaq composite leapt 4.4%. The small-cap Russell 2000 lost 2.6% after diving 8.4% in the prior week.
Note that the 10-year Treasury yield dived 30 basis points to 3.395%. The 10-year yield is just above the Feb. 2 intraday low of 3.33%. The two-year yield crashed 74 basis points to 3.85%, the biggest weekly drop since 1987.
U.S. crude oil futures plummeted 13% to $66.74 a barrel last week, hitting 15-month lows.
Copper prices skidded 3.3%, but rose on Thursday and Friday.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.85% last week. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 5.1%, helped by Microsoft, Salesforce.com (CRM) and Adobe (ADBE). The VanEck Vectors Semiconductor ETF (SMH) leapt 5.4%. AMAT stock, On Semiconductor and STMicroelectronics are SMH holdings.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) leapt 7.4% last week and ARK Genomics ETF (ARKG) climbed 3.9%. Tesla stock is a major holding across Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) tumbled 5.7% last week. The Global X U.S. Infrastructure Development ETF (PAVE) skidded 4.9%. U.S. Global Jets ETF (JETS) plummeted 15.6%. SPDR S&P Homebuilders ETF (XHB) dipped 0.8%. The Energy Select SPDR ETF (XLE) plunged 6.9% and The Health Care Select Sector SPDR Fund (XLV) rose 1.4%.
Bank Stocks
The Financial Select SPDR ETF (XLF) slumped 5.9% to a five-month low. JPM stock, a key XLF holding, fell 5.9%, the lowest since October and just holding its 200-day. That’s despite JPMorgan being among the best-run, well-capitalized banks. BAC stock tumbled 8.1% last week to its worst level since late 2020.
SPDR S&P Regional Banking ETF (KRE) dived 14.3% to the lowest since late 2020 after plunging 16% in the prior week. California-based First Republic, Western Alliance (WAL) and PACW stock are among KRE’s many holdings, along with larger regional names such as KeyCorp (KEY) and Comerica (CMA).
WAL stock and PacWest suffered huge weekly losses, while KeyCorp and Comerica both lost 26%.
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Fed Rate Hike Or No?
The current bank crisis, triggered by rapid Fed rate hikes over the past year, has upended hawkish bets for a half-point rate hike on March 22.
Currently, markets see a 62% chance of a quarter-point rate hike at the end of the Fed meeting on Wednesday. Investors are betting on a pause in May, with multiple rate cuts expected after that.
But all of this is in flux. Fed chief Jerome Powell and fellow policymakers may not yet know what they plan to do.
Policymakers don’t want to ease off on inflation, but obviously they don’t want to trigger a wider financial crisis. The Federal Reserve is a major player in financial regulation and any crisis policies.
Banking woes are tightening financial conditions, despite the plunge in Treasury yields. Even if financial stresses quickly recede, banks are likely to rein in lending. That will further slow the economy and, along with tumbling commodity prices, ease inflation pressures.
The rate hike outlook will be crucial. The Federal Reserve will update economic and rate hike projections on Wednesday. Markets will pay close attention to Fed chief Powell’s comments about how the policymakers view the current situation.
Chip Stocks Near Buy Points
On Semiconductor, also known as Onsemi, dipped 0.1% to 78.28 last week. It’s technically in range from a still-valid 77.38 buy point from a cup base cleared initially in January. ON stock also is finding support at the 10-week and 21-day lines, working on a new consolidation. A move above the March 9 high of 84.97 would offer an early entry for this EV-focused chipmaker.
Aehr Test Systems jumped 10.3% last to 32.25, ending just above the 21-day and 50-day lines. AEHR stock has a new base with a 37.67 buy point. Look for early entries on this very volatile name, perhaps above Friday’s high of 33.84. On Semi is Aehr Test Systems’ top customer.
MBLY stock shot up 11% to 43.58, rebounding from the 50-day and retaking the 21-day. That offered an aggressive entry for the self-driving-car systems maker, which came public in October. Mobileye stock is working on a new consolidation.
GFS stock rose 3.5% to 66.46 for the week, rebounding from the 10-week line. The chip foundry is forging a potential flat base next to prior consolidations. The buy point would be 72.60, but investors could use 68.70 as an early entry, clearing the bulk of recent action.
AMAT stock leapt 7.2% to 122.60, bouncing from the 50-day line in an upside, outside week. Shares are just below the 125.02 flat-base buy point, but are already actionable above 121.50.
MPWR stock gained nearly 2% to 488.31 last week, rebounding from the 10-week line and ending just above the 21-day line. Monolithic Power stock has a 530.75 cup-with-handle buy point, according to MarketSmith analysis. Investors could use Friday’s high of 503.92 as an early entry.
STM stock dipped 0.5% to 48.03, bouncing from the 50-day line on Thursday, trading just above the 21-day line. Shares have traded tightly in the past few weeks. STM stock has a 50.90 buy point from a long cup-with-handle base. Investors might see an early entry around 50.
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Tesla Stock
Tesla stock rose 3.9% to 180.13 for the week, still working on a bottoming base after a powerful run in January to mid-February. The EV giant is trading with key moving averages in play. TSLA stock found support at the 50-day line on Monday, but is facing short-term resistance at the 21-day line. Above that is the 200-day moving average, which has come down to almost coincide with the potential 217.75 buy point.
STMicro and On Semiconductor are Tesla suppliers, but the EV giant says it aims to slash silicon carbide chip use in its next-generation vehicle platform.
Market Rally Analysis
The stock market rally isn’t just split, it’s a Jekyll and Hyde market.
The Nasdaq looks relatively healthy, moving strongly last week to reclaim all the key moving averages. But the other indexes are below all the moving averages. The S&P 500, bolstered by tech giants, did rise modestly last week, but couldn’t hold its 200-day line. The Dow and especially the Russell 2000 lost ground, trading near 2023 lows.
A number of growth stocks are faring well, notably tech titans and chip plays but also a few software names. Homebuilders and some medical products makers also are acting well. But leadership is narrow.
Ultimately, a divided market rally cannot stand. If the bank crisis wanes, a broad-based, growth-led rally may take hold. But if bank woes spread, it’s hard to see the Nasdaq and growth leaders making any headway.
Depending on the weekend headlines, stocks and Treasury yields could soar or plunge at Monday’s open. The Fed rate hike decision and outlook will also have a huge impact. Ultimately, it’s not the news that matters, but the reaction to the news. But there is a lot of news swirling.
The Nasdaq and S&P 500 could confirm the market rally attempts with a follow-through day this coming week. But confirmed market uptrends don’t always succeed.
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What To Do Now
The stock market is still in a correction, though the Nasdaq and growth stocks have shown promising action over the past week.
Investors could try to play some stocks flashing buy signals, but the risks remain high. Keep your exposure light awaiting a renewed market rally.
There’s a strong case for waiting for a follow-through day. Even then, investors should move in gradually, especially with the bank crisis hanging over financial markets.
But investors need to be ready. Many stocks are on the cusp of buy points, or could be with a few good days. So it’s an important time to be preparing by working on your watchlists.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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