The market received a boost on Monday in the form of news that First Citizens BancShares Inc. (FCNCA) was buying some assets of failed Silicon Valley Bank. The purchase was viewed as a steal as FCNCA jumped over 50% on the news.
That news, coupled with more statements from governmental officials about the strength of banks, helped the entire financial sector to bounce, but that reversed some of the flows into big-cap technology that has been benefiting from the banking crisis.
Stocks sold off hard into the close, and the Nasdaq 100/Invesco exchange-traded fund (QQQ) finished with a loss of about 0.8%.
Overall, market breadth was good at around two-to-one positive. This was reflected in small caps that showed relative strength for a change, with the Russell 2000 ETF (IWM) gaining 1.1%.
Stocks reversed late in the day after "Bond King" Jeffrey Gundlach appeared on CNBC and predicted that a recession would hit in the next couple of months and the Fed was done raising rates. He predicted that the Fed would have to aggressively cut rates to deal with the slowing economy.
Gundlach joins a long list of strategists predicting a substantial economic slowdown, but the market has not exhibited any great concern about it so far. Ironically big- cap technology, which is likely to suffer in a recession, has been unusually strong.
On Tuesday, we have the consumer confidence report, but there is not much news flow out there. That is helping the bulls keep things moving to the upside, as there is still liquidity looking for a place to go.
The big risk is that macro news could hit any time, and the bulls may be forced to acknowledge that inflation may still be running hot or the economy is slowing or both. It is a healthy sign that some of the chasing of the big-cap technology names did cool off.
It is a trading range market with a high risk of negative surprises. The late-day swoon on Monday was a good illustration of the level of risk that exists.
Have a good evening. I'll see you tomorrow.
