Daily market review
Investors exhibited a risk-off mentality on quadruple witching options expiration day due to the ongoing pressure in the banking sector. Although yesterday saw a pleasing finish, it was mainly a relief rally following the news that First Republic Bank had received cash infusions from 11 big banks, which totaled $30 billion. However, the relief from that news was short-lived, and FRC stock was sold again after it provided a cash position update and suspended its dividend. Reports that banks had borrowed $11.9 billion from the Bank Term Funding Program and a record $153 billion from the Fed's discount window for the week ending March 15 renewed investors' worries about the health of the banking industry. As a result, there was fairly indiscriminate selling in bank stocks, with the SPDR S&P Bank ETF falling 5.6% and the SPDR S&P Regional Bank ETF falling 6.0%.
However, there was some underlying strength in the mega-cap space as investors flocked to names that were viewed as being distant from the banking sector fallout, having strong balance sheets and being more resilient in an economic slowdown. Microsoft, Alphabet, and NVIDIA were notable beneficiaries in that regard, with NVIDIA being upgraded to Overweight from Equal Weight at Morgan Stanley today.
The selling efforts were broad in nature, with all 11 S&P 500 sectors logging a loss today. Information technology and communication services sat atop the leaderboard, both experiencing losses of less than 1%. Meanwhile, the financial sector suffered the steepest decline, along with real estate and industrials.
Total industrial production was unchanged in February, and the capacity utilization rate held steady at 78.0%. The key takeaway from the report is that industrial production activity is softening. Leading Indicators fell 0.3% in February, and the preliminary University of Michigan Consumer Sentiment Index for March dropped to 63.4. The key takeaway from the report is the moderation in inflation expectations, although year-ahead inflation expectations still remain well above the range seen in the two years prior to the pandemic.
The Dow (-1.35%), Nasdaq (-0.95%), and S&P 500 (-1.24%) indices declined, with an increase in the 10-year Note to +37/32 at 3.40. The NYSE had an Advance-Decline ratio of 476:2414 and volume of 3.9 billion, while the Nasdaq had an Advance-Decline ratio of 1153:3289 and volume of 7.6 billion. The industries experiencing weakness were Financials, Industrials, Consumer Discretionary, Materials, and Real Estate, while there were no industries showing strength.