Stocks rose Friday as Wall Street wrapped up a volatile, but winning quarter that saw more Federal Reserve rate tightening and a mini-financial panic spurred on by the collapse of Silicon Valley Bank.
The S&P 500 added 1.44% to close at 4,109.31, while the Nasdaq Composite advanced 1.74% to end at 12,221.91. The Dow Jones Industrial Average gained 415.12 points, or 1.26%, closing at 33,274.15.
The market got a boost Friday after the Fed’s preferred inflation gauge showed a cooler-than-expected increase in prices. The core Personal Consumption Expenditures index, which excludes energy and food costs, rose 0.3% in February, less than the 0.4% expected by economists polled by Dow Jones.
The S&P 500 and Nasdaq were up 7.03% and 16.77%, respectively, for the first quarter. It was the best quarter since 2020 for the tech-heavy Nasdaq. The Dow ended the period with a 0.38% increase.
For the month, the S&P 500 and Nasdaq have gained 3.51% and 6.69%, respectively. The Dow, meanwhile, advanced 1.89% to end March.
But it hasn’t been a smooth ride. Stocks mounted a comeback in the latter part of March after the month began with the failure of two regional banks, a forced-takeover of Credit Suisse and a flight of deposits from smaller institutions. The government’s backstop of the deposits of SVB, as well as Signature Bank, and the setup of a special lending facility for other banks, helped stem the crisis.
Primary credit lending totaled $88.2 billion while banks took out $64.4 billion through the Fed’s new Bank Term Funding Program, according to Fed data released Thursday that covered the period from March 22-29. That total of $152.6 billion was down slightly from $164 billion the week before and a further sign the crisis was stabilizing as the month comes to an end.
The SPDR Regional Banking ETF (KRE) closed about 1% higher on Friday, continuing its comeback from the contagion lows.
Tech stocks were the big winner this month as investors rotated out of financials. The Technology Select SPDR ETF (XLK) added roughly 10% in March.
The recent rally is “helping to confirm the market’s perception that the problems that brought the market to a crisis of confidence could very well be contained,” said Quincy Krosby, chief global strategist for LPL Financial.
“The semiconductors, [which] have come to be viewed as an important bellwether for global growth, delivered a strong performance,” she added.
Isabelle Lee and Peyton Forte of Bloomberg also report that US stocks extend rally as traders eye peak rates:
Technology shares extended the week’s US stocks rally after a key measure of inflation cooled last month, suggesting the Federal Reserve may be close to ending its rate-hiking campaign. Treasuries rose.
Excluding food and energy, the Fed’s preferred inflation gauge — the personal consumption expenditures price index — rose 0.3% in February, slightly below the median estimate. Meanwhile, the PCE price index was up 5% from a year earlier, a deceleration from January but far higher than the Fed’s 2% goal.
The S&P 500 rose 1.4% — bringing its weekly gains to 3.5%, the most since November — while the tech-heavy Nasdaq 100 gained 1.7%, helping it to notch its biggest quarterly gain since June 2020.
“Overall, it was a round of data consistent with the peak inflation narrative but also with the Fed’s insistence that there remains work to be done to re-establish price stability,” Ian Lyngen of BMO Capital Markets wrote in a note.
Treasuries also ended the quarter of wild swings higher on Friday as investors struggled to adjust for recent bank failures and the shifting outlook for interest rates. The two-year yield fell to around 4.05% Friday while the 10-year maturity dipped to 3.48%. The dollar strengthened against major peers.
“The S&P 500 has done well to recover from banking sector concerns over the past few weeks,” wrote Michael Gibbs, director of equity portfolio and technical strategy at Raymond James. “However, the rally has been a bit more uneven beneath the surface, reflecting the confusion inherent within the current backdrop.”
While technology stocks have risen to the highest since August 2022 — propelling gains in the broader market — the percentage of stocks above their 50-day moving average has contracted, Gibbs said. Only a small number of shares actually account for the US rally.
“Extremely narrow rallies are not healthy ones at all, so it is going to be essential for the bulls to see more groups participate in the rally going forward,” Matt Maley, chief market strategist at Miller Tabak + Co., wrote. “If they don’t, it will only be a matter of time before a correction in the big-cap tech names turns this nice rally into an ugly decline.”
Citigroup Inc. strategists said the focus among investors is set to shift from worries about high interest rates to the risks of a recession, and as that happens, US stocks look more attractive than those in Europe.
A Citi team led by Beata Manthey upgraded US stocks to overweight from underweight on Friday as they “perform more defensively than other markets” during earnings recessions. They expect global earnings-per-share to contract 5% in 2023 and say that analysts are likely to slash profit estimates even further.
Elsewhere in markets, oil traded in New York saw a weekly gain of 9% amid ongoing disruption to Iraqi exports. Bitcoin notched its best quarter since March 2021 with a gain of about 70%. And Digital World Acquisition Corp., the blank-check firm taking Donald Trump’s media company public, rallied after he became the first former president to be indicted.
Some of the main moves in markets:
Stocks
The S&P 500 rose 1.4% as of 4:04 p.m. New York time
The Nasdaq 100 rose 1.7%
The Dow Jones Industrial Average rose 1.3%
The MSCI World index rose 0.7%
Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.6% to $1.0844
The British pound fell 0.4% to $1.2334
The Japanese yen was little changed at 132.76 per dollar
Cryptocurrencies
Bitcoin rose 0.9% to $28,416.49
Ether rose 1.7% to $1,826.2
Bonds
The yield on 10-year Treasuries declined eight basis points to 3.47%
Germany’s 10-year yield declined eight basis points to 2.29%
Britain’s 10-year yield declined three basis points to 3.49%
Commodities
West Texas Intermediate crude rose 1.6% to $75.56 a barrel
Gold futures fell 0.5% to $1,987.50 an ounce
Alright, it's Friday and it was a monster quarter for tech stock led by a handful of names: Apple, Microsoft, Nvidia and Meta Platforms:
S&P 5 vs. S&P 495 this quarter👇 (GS) pic.twitter.com/a80F74ALQH
— Michael A. Arouet (@MichaelAArouet) March 29, 2023
Weight of 2 largest stocks - $AAPL and $MSFT - in the S&P 500 are close to their historic highs.
— Oktay Kavrak, CFA (@OKavrak) March 31, 2023
Big tech is providing a nice cover for the rest of the index. pic.twitter.com/gtIOXr1iaD
Whenever you sees such narrow price action, one of two things can happen:
- Either the rest of the market catches a bid and breadth improves in a Risk On market
- If there is an earnings recession and Risk Off markets take hold, these stocks which acted as a refuge will see intense selling pressure, bringing the market to new lows.
There is this notion that as Q1 performance goes, so does the rest of the year, and this may prove to be the case once again as tech shares had a stellar Q1 performance, but I don't see this being the case.
This isn't exactly bullish, especially when M2 is plunging! Expect stocks to get slammed in Q2 & Q3.
— Leo Kolivakis (@PensionPulse) March 31, 2023
In fact, after listening to Francois Trahan's conference call Thursday morning, I'm more confident than ever that a nasty earnings recession lies straight ahead in Q2 and Q3:
I'm just providing you with a glimpse, there were a lot more great charts and Francois covered a lot of material which is why I keep telling my institutional readers to subscribe to Trahan Macro Research (most top funds do).
When earnings decline, it's called a profits recession. And those are nasty ones because companies shed costs (ie. fire people) to make up for lost profits but it becomes a vicious cycle.
Is it sustainable? 👇 (FT) pic.twitter.com/cq20QxJzwU
— Michael A. Arouet (@MichaelAArouet) March 31, 2023
Does it look like no landing? 👇 (Lombard Odier) pic.twitter.com/NEFL4EFyjw
— Michael A. Arouet (@MichaelAArouet) March 31, 2023
Anyway, one thing is clear, we are heading into a recession and the US leading economic indicator is confirming this:
The Conference Board Leading Economic Index (LEI) is designed to provide insight into the future of the US economy.
— Oktay Kavrak, CFA (@OKavrak) March 27, 2023
The message from its 10 indicators is clear:
➜ "Prepare for a BAD recession."
(via Incrementum AG) pic.twitter.com/smTciCogan
I think everyone understands the importance of labor markets for consumer-driven economies, especially in the U.S. where consumption accounts for 68% of GDP. The relationship between Fed policy and Initial Jobless Claims is well established as this chart illustrates. pic.twitter.com/2ttnijFU5T
— Francois Trahan (@FrancoisTrahan) March 30, 2023
In other words, a hard landing awaits us and my fear is it will be a deep and prolonged recession unlike anything we have seen since the 1970s.
Nomura Says US Money Supply Plunge Is ‘Elephant in the Room’ for Markets https://t.co/TuXlGz4jq3
— Leo Kolivakis (@PensionPulse) March 31, 2023
Here’s what I don’t miss on this last Friday of Q1
— Danielle DiMartino Booth (@DiMartinoBooth) March 31, 2023
A year ago, inflationistas were howling about the money supply. Now that it’s the most negative since 1930 (hat tip Lacy) I can’t hear a damn thing
Despite the deflationary warning bells ringing, it’s somehow quieter on my feed pic.twitter.com/0o72wcQamB
A $3 Trillion Threat to Global Financial Markets Looms in Japan https://t.co/P1RSvtjURk
— Leo Kolivakis (@PensionPulse) March 30, 2023
Anyone notice the TED Spread in Japan sits near multi-year highs?! That can't be good. The first signs of financial stress in the GFC occurred in September of 2007. It would be a full year before the market would meltdown, but that was the first warning sign. Tread carefully! pic.twitter.com/3BIsA3AcBL
— Francois Trahan (@FrancoisTrahan) March 30, 2023
What is going on in Japan is particularly concerning because if Japanese rates start moving up, more institutional investors there will sell Treasurys to buy JGBs.
It is worth monitoring developments there because if the rise in Japanese long bond yields pick up steam, it could be the exogenous shock that rattles global bond markets.
Regardless, the US economy is slowing and that means stock correlations are rising, so security selection becomes a lot harder:
We're now in a world where the stock market call is more important than picking the right stock (the opposite holds true in a bull market and a recovering economy). Surely, it helps to pick the right stocks, but the slower the economy gets, the less relevant it is to returns.
— Francois Trahan (@FrancoisTrahan) March 30, 2023
As far as the Fed is concerned, I agree with those who see more hikes coming, not with those who think the Fed needs to ease off here:
Great article on Bloomberg entitled "Fed Still Has Work To Do When It Comes To Core Inflation.” It goes against the narrative that the Fed is almost done tightening by highlighting that the cyclical component of core inflation is "... at its highest on record going back to 1985.” pic.twitter.com/cvDOs6bts6
— Francois Trahan (@FrancoisTrahan) March 31, 2023
#Fed letting the punch bowl drain but it’s not removing the punch bowl and sobering up the economy. Real #FedFunds barely positive plus #cryptos and spec assets rallying says the party still on. More hikes coming. pic.twitter.com/BBewxgctBh
— Richard Bernstein Advisors (@RBAdvisors) March 31, 2023
Jim Lebenthal asks the Fed “What more do you want!?” pic.twitter.com/HWnFOu08sM
— CNBC Halftime Report (@HalftimeReport) March 31, 2023
What does all this mean for stocks? Well, for one, all this bearish sentiment has given stocks room to run further:
Bearish Sentiment on Stocks Is Best Thing Rally Has Going for It https://t.co/2QYml8SXYv via @YahooFinance
— Leo Kolivakis (@PensionPulse) April 1, 2023
And the monster rally in tech stocks in Q1 has roasted many shorts, including the Big Short's Dr. Michael Burry:
Chaos in Banks Buoy Short Sellers Hit by Tech Stocks’ Surge https://t.co/r5hkNhxSy3 via @YahooFinance
— Leo Kolivakis (@PensionPulse) April 1, 2023
I was wrong to say sell.
— Cassandra B.C. (@michaeljburry) March 30, 2023
Going back to the 1920s, there has been no BTFD generation like you. Congratulations. pic.twitter.com/iAGN0CqmjD
— Cassandra B.C. (@michaeljburry) March 30, 2023
But not all shorts are throwing in the towel here:
A famous market watcher who called the subprime mortgage crisis is warning that stocks are about to crash: ‘It’s the highest probability since COVID’https://t.co/adD6BDJ05m
— AIRA SECURITIES (@AIRAPLC) March 30, 2023
There is no question, this is a "bull" market.
— Mac10 (@SuburbanDrone) March 31, 2023
Bought and believed by the biggest serial conned fools who walked this Earth.
This is a VERY lame correction in a bear market. 'b' should not be below the origin of 'a'. And 'c' should not be below the peak of 'a'. pic.twitter.com/6S6xVdA5ft
Bulls, you deserve it. pic.twitter.com/fNrn2GLAZM
— Mac10 (@SuburbanDrone) March 31, 2023
The chart of the week, month, and quarter:
— Mac10 (@SuburbanDrone) March 31, 2023
"BTFP"pic.twitter.com/n9XrpX56T3
$SPX If this is a valid head and shoulders forming then the 4100 level should start meeting renewed selling pressure https://t.co/8k4mT3MAnZ
— Reformed Tr🅰️der (@Reformed_Trader) March 31, 2023
This is what I believe is going to happen, we are entering earnings season on April 14.
A lot of hedge funds that were buying tech stocks in Q1 are going to start unwinding, slowly at first but it will gather steam once ugly earnings appear.
A lot of Q1's high-flyers will see losses in Q2 & Q3 as Risk-Off markets come back:
Again, this will not happen overnight and there will be catalysts along the way, like the March US CPI report scheduled to be released on April 12 at 8:30:
And don't kid yourselves, while M2 is plunging, core inflation pressures remain sticky and goods inflation might bounce back here:
Meanwhile:
— Otavio (Tavi) Costa (@TaviCosta) March 27, 2023
Used car prices increased again for the 5th month in a row.
Prices continue to firm up at historical levels, despite being down about 2% on a year-over-year basis.
Inflationary forces remain stubbornly high due to structural macro drivers.
The Fed just erased 5… pic.twitter.com/FMNPEgKkVv
I still maintain the big pain trade in 2023 won't be FOMO and missing our tech rally 3.0, it will be a nasty and prolonged earnings recession which leads to a nasty and prolonged economic recession.
No doubt, Q1's tech rally was impressive but it was very narrow and you need perspective:
Nasdaq 100 now stone-dead flat over two years.
— Michael Santoli (@michaelsantoli) March 31, 2023
The huge ramp this year that everyone is fretting or pretending to fret over is just the latest lunge in a catch-up bid vs. the equal-weight S&P 500, and still hasn't taken the NDX back to its August high. pic.twitter.com/05XX1Ib87o
Alright, let me wrap it up with some Friday humor:
When your doctor tells you that you should not drink more than one glas of wine per day 👇 Happy Friday
— Michael A. Arouet (@MichaelAArouet) March 31, 2023
pic.twitter.com/xr8Bt7q3Ji
Have a nice glass of wine this weekend, relax, the market looks great so far but don't get carried away thinking this is a new bull market led by tech shares, a brutal earnings reality is about to slice a lot of stocks in half and more.
I remain convinced that Q2 & Q3 will bring a lot more pain to bulls than bears.
Dr. Burry wasn't wrong, his timing was way off. Keep your eyes on VIX as it climbs above 20 and on high yield bond yields.
Below, Gradient Investments’ Mike Binger and Circle Wealth’s Maria Chin, join 'Power Lunch' to offer the bull fight for stocks and bonds.
I think stocks and bonds are going to get hard in short term but bonds will become very attractive once the 10-year Treasury yield crosses above 5%.
Second, Dan Niles, The Satori Fund founder and portfolio manager, joins ‘Squawk on the Street’ to discuss how investors should position their portfolio as the Nasdaq and S&P are closing out this quarter led by technology, why it's time to buy some names like Meta and Nvidia, and more.
Niles is bang on, he explains a lot here and I will add, the Fed also added fuel to the tech fire in last few weeks:
After surging over past couple weeks, Fed’s balance sheet registered a decline this most recent week pic.twitter.com/Ed81dsCsdc
— Liz Ann Sonders (@LizAnnSonders) March 31, 2023
With QE fading here, it will impact growth stocks. Niles is targeting banks but I personally believe when the earnings a recession starts, all sectors will get hit.
As he says, "earnings matter", you're going to have two weeks where sentiment still can influence short term moves but once earnings come in, stocks will get hit.
Third, Gina Sanchez of Chantico Global says there's enough tightening in financial and credit conditions to more than make up for any further tightening the Fed could do.
Lastly, Calamos and Giannis Antetokounmpo ring The Closing Bell® at the NYSE on Friday, March 31. Go Team Giannis!!