- "The Fighting 69th" (excerpt), Casey, Kelly, Barton (performed by numerous artists)
Happy St. Patrick's Day!
Forgive me my small tribute to one of my old units, the Fighting Irish 69th New York Infantry Regiment. (The University of Notre Dame athletics teams were named after us by Father William Corby, who served as chaplain to the regiment during the Civil War and then later went on to serve as president of that university.)
The regiment normally leads the St. Patrick's Day parade in New York City every year, unless it is forward deployed, as it is right now. You may see a few soldiers and veterans leading the parade this year, but the regiment is elsewhere, ensuring our freedom and safety.
It is with a tip of the cap to ole St. Patrick, and those observing his feast day this Friday, that we proceed with the day's work, and with a nod that we pay respect to those boys who fear no noise, the mighty 69th... that last remaining intact unit of the Army of the Potomac's legendary "Irish Brigade."
Faugh a Ballagh (Clear the way)
Best Day in Weeks
At least for the Nasdaq Composite. The major US equity indexes had opened in line to slightly lower on Thursday morning from where they went out on Wednesday evening. There was probably more than an hour of pressure spread about our marketplace as investors and traders on this side of the Atlantic took note of the European Central Bank's 50-basis- point rate hike. If the ECB was going to go ahead and fight inflation despite weakness felt broadly across the banking industry of that continent, did that signal anything for the Federal Open Market Committee for next week?
Those questions were ultimately, if not cast out, at least put aside as traders first sought safety, then flooded into growth-type stocks as the Financials, including both banks in general and regional banks specifically, showed buoyancy through the afternoon hours.
The macro remained wonky. While Housing Starts for February showed the first growth for that metric since last summer, the Philadelphia Fed's manufacturing survey for March, which is arguably the most important regional US manufacturing survey, reinforced the idea that at least part of the economy is deeply mired in recession. For the Fed's Philadelphia district, for the month of March, New Orders, Shipments, Unfilled Orders, Inventories, Number of Employees and Average Workweeks all printed in severe states of contraction from already weak levels in February. Only prices showed growth, and that growth has slowed significantly.
Then it was Treasury Secretary Janet Yellen's turn to testify before the Senate Banking Committee. Madam Secretary appeared to lay out the groundwork for an economic scare: "A more general problem that concerns us is the possibility that if the banks are under stress, they might be reluctant to lend where they're worried about shoring up liquidity and capital. And we could see credit become more expensive and less available." Then Yellen soothed the panel: "I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them." It's not that Secretary Yellen is always right. Far from it. This was, however, what the keyword-reading algorithms that control price discovery in financial markets in this modern era needed to see on Thursday.
Group Rescue
The real story of strength in the markets on Thursday came as 11 US banks that include the largest banks in the country joined in depositing a torrent of cash totaling $30 billion in First Republic Bank (FRC) in an apparently coordinated effort to stop a panic from spreading beyond the failures of Silicon Valley Bank (SIVB) and Signature Bank (SBNY) .
The large money center banks -- JPMorgan Chase (JPM) , Bank of America (BAC) , Wells Fargo (WFC) and Citigroup (C) -- would all deposit $5 billion in uninsured deposits apiece in First Republic, while Morgan Stanley (MS) and Goldman Sachs (GS) ponied up $2.5 billion each. Five other banks deposited $1 billion in cash each. Those five banks were US Bancorp (USB) , PNC Financial (PNC) , Truist Financial (TFC) , Bank of New York Mellon (BK) and State Street Corp. (STT) .
These are ordinary deposits, the idea being to shore up the immediate issue of depositors fleeing First Republic in fright. Obviously, First Republic still must deal with a tougher economic environment and the higher interest rate regime that puts pressure both on the bank's investment portfolio as well as on the potential for traditional banking profitability through net interest margin as the competition for consumer and business savings only gets fiercer.
Marketplace
As the US dollar showed some weakness in response to the European Central Bank policy shift, Treasury securities remained volatile as a bid moved under both US equities and commodities that only strengthened as news of the 11-bank "bail-in" made the rounds. As mentioned above, growth was favored over defensives.
The Philadelphia Semiconductor Index gained a hot 4.05% for the session, leading all mid-major to major indexes, of which none gained less than 1.17% (the Dow Industrials). Among those semis, Advanced Micro Devices (AMD) , Marvell Technology (MRVL) and Intel (INTC) led the way north with gains of 7.72%, 7.28% and 6.23%, in that order.
In between the top and bottom, the Nasdaq Composite posted a strong day, up 2.48%, its best session in weeks as the S&P 500 gained 1.76%. Ten of the 11 S&P Sector SPDR ETFs shaded green on Thursday, while none landed in the red. Technology (XLK) and Communication Services (XLC) led the way, up 2.81% and 2.25%, respectively, while all four "defensive" sectors took the bottom four slots on the daily performance tables. The REITs (XLRE) finished in last place, unchanged for the day.
As far as breadth is concerned, we see some volume-based cause for concern, though there clearly has been technical progress made across the major indexes. Winners beat losers by a rough 3 to 1 at the New York Stock Exchange on Thursday and by about 2 to 1 at the Nasdaq. Advancing volume took shares of 71.7% and 70% of composite volume of names listed at those two exchanges, respectively.
That said, trading volume ebbed a bit on Thursday. Aggregate trading volume contracted 13.6% day over day for NYSE-listed stocks and by 7% day over day for Nasdaq-listed names. Trading volume also fell on a day-over-day basis across both the S&P 500 and Nasdaq Composite. While that is mildly discouraging, it must be noted that both indexes saw their daily composite trading volume exceed their individual 50-day trading volume simple moving averages (SMAs) for a fifth or sixth day consecutively. In addition, the Nasdaq Composite has now shown gains for four consecutive sessions. This is somewhat encouraging.
Technical Progress
Readers will note that coming off of a very negative-looking daily moving average convergence divergence (MACD) and Relative Strength that had nearly grazed technically oversold conditions, the S&P 500 managed to retake its 200-day SMA on Thursday and do so convincingly. The index fell short of making a run at its 21-day exponential moving average (EMA) and closed above the midpoint of the 3800/4200 range that has contained this index since November.
Readers may delight in seeing that the Nasdaq Composite managed to retake its 21-day EMA, 50-day SMA and 200-day SMA, all while experiencing a "golden cross" (bullish crossover of the 200-day by the 50- day) all in one session. You wondered why the program traders will not quit and just keep buying growth? Remember, forced overshoot is their sport of choice. This is but the environment we live in. Our job is to adapt to and then excel in any environment. We are, by necessity, amphibious.
Oh, How Nice
The Fed released its weekly balance sheet data on Thursday evening. Some of you probably noticed that the balance sheet ballooned from $8.342 trillion for the week ended March 8 to $8.639 trillion for the week ended March 15. Yes, that's right, in one week the Fed added slightly more than $297 billion to its balance sheet, which is 3.6% week over week growth and a 47% retracement of all the progress previously made in reducing the balance sheet through its quantitative tightening program.
No, the Fed has not gone quantitative easing on us, but it did open the discount window wide and banks were eager to use it. I was surprised to learn that the Fed had only lent $11.9 billion through the Bank Term Lending Program (BTLP) announced last weekend. Forecasts had been for hundreds of billions of dollars to be lent there.
There was a need, but it just was not met through the BTLP. Banks borrowed $152.85 billion through the primary discount window. This "window" helps sound depository institutions manage liquidity risks at a rate relative to the fed funds rate. For an idea of how large this is, the Fed lent $4.44 billion through this window the week prior. It is believed that much of this borrowing came by request late last week as the Silicon Valley Bank collapse was under way. Can't wait until next Thursday to watch this number evolve.
Economics (All Times Eastern)
08:30 - Industrial Production (February): Expecting 0.4% m/m, Last 0.0% m/m.
08:30 - Capacity Utilization (February): Expecting 78.5%, Last 78.3%.
10:00 - U of M Consumer Sentiment (March-adv): FExpecting 66.9, Last 67.
10:00 - CB Leading Indicators (February): Expecting -0.2% m/m, Last -0.3% m/m.
13:00 - Baker Hughes Total Rig Count (Weekly): Last 746.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 590.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (AQN) (0.20)
