From a broad perspective, equities performed well on Monday. Much better than I would have expected to be honest, with the banking crisis anything but "fixed" and with an FOMC policy decision on the docket for tomorrow (Wednesday).
As for the banking crisis, it seemed that sectors far from the epicenter of the crisis saw some improvement as the Swiss government and Swiss National Bank sort of forced UBS Group ( UBS) and Credit Suisse ( CS) into a union, and as New York Community Bancorp ( NYBC) agreed to acquire a sizable chunk of Signature Bank ( SBNY) .
While those items are general positives, another quite important item has not worked according to plan. Shares of First Republic Bank ( FRC) took a 47% beating on Monday after S&P Global on Sunday downgraded the bank's (already junk) credit rating from BB plus- to B plus.
This occurred despite, or in spite of last week's $30B deposit made by 11 of First Republic's competitors (including the large money-centers) in a failed attempt to shore up confidence in First Republic after the bank had seen some $70B in deposits withdrawn by customers year to date. First Republic had $176.4B in deposits on the books at year's end. The Financial Times reported on Monday evening that First Republic bonds maturing in 2046 were trading at a rough $0.55 on the dollar.
This has forced banking executives led by JPMorgan Chase's ( JPM) Jamie Dimon to try to come up with some other plan. In the form of deposit, the $30B "lent" to FRC by the 11 banks is a liability on the bank's balance sheet. If that deposit could be converted somehow, into an equity stake, it might put First Republic on sounder financial ground.
Very Quiet
First off, while the results on Monday appear broad, it was clear that much of Wall Street sat that one out. Blue chips performed well. Twenty-eight names among the Dow 30 shaded green for the session as the Industrial Average sported a gain of 1.2% for the session. However, the action was less impressive elsewhere. The S&P 500 gained 0.89% on Monday as the Nasdaq Composite showed progress of 0.39%. Smaller caps were able to outperform large caps on the day, which one might see as a positive in the face of a potential recession, but the Dow Transports shaded red for the session, negating that idea.
All 11 S&P sectors gained for the session on Monday, led by the Materials ( XLB) and Energy ( XLE) sectors on U.S. dollar weakness. Growthy type sectors that were last week's winners lagged near the back of the pack on Monday.
Communication Services finished the day in ninth place (still up 0.75%), but very interestingly, Technology ( XLK) finished in last at +0.27%. I say interesting, because there was a clear split within the sector. The Philadelphia Semiconductor Index remained strong, gaining 1.01% for the day, while the Dow Jones U.S. Software Index surrendered 1.4%. Large-cap software losers on Monday were led by Atlassian ( TEAM) and DocuSign ( DOCU) . Those two names were taken 5.91% and 4.61% lower, respectively.
The real disappointments on Monday were in the breadth and in the lack of participation. Winners beat losers by roughly 3 to 2 at the NYSE, but by just a smidge at the Nasdaq. Advancing volume did take a 61.3% share of composite NYSE-listed trading and a 52% share of Nasdaq-listed trading, but, and this is a big but, trading volume fell off of a cliff. You say that Friday was an expirations event, and you would be correct, so we'll look at this from more than one perspective.
NYSE-listed trading volume on Monday dropped 42.8% from Friday on a day-over-day basis, while also decreasing 18.5% from the prior Monday on a week-over-week basis. The drop-off was similar for names domiciled up in midtown. Nasdaq-listed trading volume dropped 37.1% day over day and also by 19.9% week over week. Monday was also the lightest traded day across both the S&P 500 and the Nasdaq Composite since Thursday, March 9.
Bottom line: Portfolio managers took some profits on last week's action. Many were quiet. Again, trading volume has been lighter on "up" days than on "down" days, which has been a consistent pattern this March.
Under the Radar
Bloomberg News reported on Monday afternoon that the Federal Home Loan Bank System (known as the "lender of next-to-last resort" as the last resort would be the Fed and its discount window) issued $304B in debt last week. This is nearly double the $165B that lenders borrowed from the Federal Reserve at the same time.
Intense need for cash? More intense than even we realized. Total outstanding advances from the FHLBS is now thought to be more than $1.1T, which if true, is likely a record, according to the article.
Another Drop in the Bucket
On Monday, Amazon ( AMZN) announced another 9,000 layoffs, this time in the margin-producing areas of AWS, advertising and Twitch. Now, I root for no person ever to lose their job, and I have lost jobs, so this is tough to say, but Amazon is nowhere near where it needs to get to, in terms of payroll reduction in order to become investable for me.
The stock trades at 68 times forward-looking earnings, while reporting revenue growth of less than 10% year over year for four of the past five quarters. The June quarter of 2021 was the last time that Amazon sported revenue growth of greater than 20%.
In fact, while showing negative net income for the entire year in 2022, Amazon has posted negative free cash flow for two consecutive years. It's been awhile since we have seen quality financial results here.
Remember, from 2019 through 2021, Amazon added roughly 800K employees to its rolls as its delivery services became invaluable during the heights of the pandemic. This announced reduction of 9K jobs will bring the recent total of layoffs up to 27K. As mentioned above, from the perspective of corporate performance, unless you are one of the 9K or 27K, this is just another drop in the bucket for Amazon.
CEO Andy Jassy appears to be a long, long way from getting Amazon right. Does that seat get hot? Hard to say. If he's still there, he must still have the backing of Jeff Bezos.
Bag of Rocks
The "Peanuts" Halloween special? No. In one of the more entertaining stories of the day, The Wall Street Journal reported that JPMorgan Chase owned bags of material kept in a warehouse in Rotterdam that were thought to be filled with 54 metric tons of nickel.
This is not going to break JPMorgan. The bags were not filled with what would be about $1.3M worth of the silvery looking metal, but apparently with rocks, just ordinary rocks instead.
Wait, What?
The Journal also reported on Monday evening that Candida auris, which is a fungus first discovered in 2009 in Japan, had infected at least 2,377 individuals in the U.S. in 2022, up from just 53 in 2016. The first case in the U.S. was discovered in 2013, and the fungus had largely been confined, at least in this country to the New York City and Chicago areas until recently. Candida auris has now been detected in 40 countries and in 35 U.S. states. Both the CDC and the WHO have labeled this fungus a "growing threat to public health."
Candida auris has an almost 60% mortality rate, and common disinfectants such as bleach and alcohol are not always effective in deep cleaning. There are three antifungal drugs commonly used in the treatment of severe fungal infection, and all three can cause toxic side effects, and even worse, the fungus is showing signs of becoming resistant to these drugs.
Both Pfizer ( PFE) and Scynexis Inc. ( SCYX) are working on developing treatments that are showing in clinical trials to be more effective than what is currently available.
Remember....
Nvidia ( NVDA) CEO Jensen Huang dishes up his keynote address from this week's GTC event at 08:00 PT (11:00 ET). Anything AI-related could start moving ahead of the opening bell.
Other than that, trading volume likely remains rather thin, at least until tomorrow afternoon.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 2.6% y/y.
10:00 - Existing Home Sales (Feb): Expecting 4.19M, Last 4M SAAR.
13:00 - Twenty Year Bond Auction: $12B.
16:30 - API Oil Inventories (Weekly): Last +1.155M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ( ONON) (0.06)
