Prior to Tuesday’s opening, the Dow Jones futures were higher as the banking crisis worsened following the failures of SVB Financial (SIVB) and Signature Bank, two sizable banks (SBNY). On mounting liquidity concerns, Schwab stock fell 11% on Monday, whereas Tesla shares rose as a result of the business ramping up recruiting at its Gigafactory in Texas. GitLab also declined 36% after earnings were late.
Financial Crisis
Even after reducing some losses, the SPDR S&P Regional Banking ETF (KRE) fell more than 12% on Monday. Add to that the 16% loss it suffered the previous week.
First Republic, a local bank, had a roughly 62% decline. KeyCorp (KEY) saw a 27.3% decline. Moreover, Western Alliance (WAL) fell by 47%.
On worries that the biggest U.S. brokerage will have to liquidate some of its bond assets to fund deposit withdrawals, Charles Schwab (SCHW) fell sharply. According to Dow Jones, the decline in Schwab stock at its lowest point on the day would have been the biggest percentage decline ever (based on records going back to September 23, 1987).
The selling affected major U.S. banks as well; Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC) saw declines of 5.8%, 1.8%, and 7.1%, respectively.
CPI Inflation Report
On the economic front, eyes will be on the consumer price index on Tuesday. Both the total CPI and the CPI excluding food and energy are predicted to increase by 0.4%. With the core inflation rate falling to 5.5% from 5.6%, the headline CPI inflation rate would drop to 6% from 6.1% in January.
The failure of three banks has sparked worries about the wider financial sector’s stress, and Wall Street now believes there is a good chance the Federal Reserve will suspend its rate-hiking campaign at its meeting next week.
Just one week after Fed chair Jerome Powell indicated that policymakers were prepared to reaccelerate rate hikes from February’s quarter-point pace at next week’s meeting, half-point increments are now off the menu.
Treasury yields have recently taken a steep plunge, reflecting significant uncertainty about the health of the economy. Markets are wagering that rate cuts are imminent even if the Fed doesn’t take a break next week.
In extended trading, GitLab (GTLB) lost 36% of its value due to the company’s weaker-than-anticipated sales outlook.
This week, earnings towards the conclusion of the season are still pouring in. These include Lennar, Five Below, Dollar General, FedEx, Adobe, Academy Sports & Outdoors, and Adobe (ADBE) (LEN).