Market Pullback – Financials in Focus – Monday Morning Market Memo – March 13, 2023

Market Pullback – Financials in Focus – Monday Morning Market Memo – March 13, 2023

Equity prices retreated notably last Friday, with the Dow Jones Industrial Average falling over 340 points (or 1.1%), the Standard & Poor’s 500 Index losing 1.5%, and the NASDAQ Composite sinking 1.8%.  This came after the release of the February Jobs Report, and the closure of Silicon Valley Bank by regulators.

Also in the mix Friday was the February Jobs Report.  The U.S. Department of Labor reported the economy added 311,000 jobs last month, well above the 205,000 number expected by the markets.  The unemployment rate came it at 3.6%, versus expectations for a print of 3.4%.  The initial thought following the job gains data was the Federal Reserve would remain more hawkish (keeping interest rates higher and for longer).  However, average hourly earnings grew at a slower rate than expected, creating some hope the Fed would perhaps ease up on interest rate increases.

One thing we love (and hate) about the markets is how you never know for sure what’s in front of you as you start each day, which is of course true in life as well.  The jobs report was supposed to be the focal point last week.  However, markets were surprised by the largest bank failure since the financial crisis.  Silicon Valley Bank in California was closed by regulators after losses in its bond portfolio and a run on the bank, sending shockwaves through the banking sector, which quickly became the most important factor for the market last week.

Fears of contagion sent the SPDR S&P Regional Bank ETF down about 16% last week, and the negativity spread throughout the broad market.  For the week as a whole – the Dow fell 4.4% to 31,910 – the NASDAQ Composite shed 4.7% to 11,139 – while the S&P 500 lost 4.6% to 3,862.

This concern over the financial sector did change expectations for the Federal Reserve’s next move.  After previously indicating the Fed was most likely to raise rates by ½ percentage point at their policy meeting next week, probabilities now stand at about 62% for a ¼ point rate increase, and 38% for no increase – according to the CME FedWatch Tool.

During the week ahead, focus would normally be on the Consumer Price Index (inflation) and Producer Price Index data, which are important determinants of Fed policy.  Consensus estimates are the February CPI will show a year-over-year increase of 6%, compared to a 6.4% increase the prior month.  However, investor’s attention will likely shift to the banking/financial sector, given the current tumult and developments there.

Looking at the market averages this morning, the major indices are all trading a bit higher, with government action protecting client deposits at Silicon Valley Bank, soothing some fears.

As always, don’t hesitate to contact us with any questions or if you would like to set up a meeting.

All the best – Southport Station Financial Management, LLC