The action started poorly on Friday morning due to poor action in German Bank, Deutsche Bank AG (DB) . Once again, there were concerns about liquidity, and that impacted the entire financial sector and sent various financial exchange-traded funds and bank stocks to new 12-month lows.
Headlines hit a couple of hours after the market open that Treasury Secretary Janet Yellen had called an emergency meeting of the Financial Stability Oversight Counsel (FSOC). Members of the FSOC include the Federal Reserve, Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and other agencies.
After the very poor communication from Secretary Yellen this past week, investors were hopeful that the FSOC would provide something more concrete about the potential of raising insurance on deposits. Banks bounced nicely off the lows and finished the day solidly in the green.
The overall market improved all day nicely and finished with about 4,750 gainers to 3,325 decliners, but the early weakness triggered around 580 stocks to hit new 12-month lows. Most of the new lows are in the financial sector, but there also are quite a few biotechnology and oil names.
One important shift today was that big-cap technology stocks lagged. It wasn't any major relative weakness, but there weren't any major names hitting new highs for a change. The chasing cooled off, and that is a healthy sign for the market that has had some severe disconnections lately.
We will see if there is any major news from the FSOC meeting before the open on Monday, but even if there is some action to protect deposits, it doesn't change the fact that there are over $1.5 trillion in unrealized losses on the balance sheets of banks.
One of the major developments is that Fed Fund Futures have shifted so much due to the financial crisis and fears of a recession that they are now predicting that there will be no more rate hikes this year. The Fed strongly disagrees with the market, and at least one member was talking about higher terminal rates on Friday. The disconnect between the market and the Fed on future rate cuts will be resolved over time, and that is what is going to be the primary market driver in the months ahead.
Have a great weekend. I'll see you on Monday.