Weekly review

The banking industry has been a major concern for investors this week, as worries that began last week continued to affect the market. To address these concerns, the Federal Reserve, Treasury, and FDIC released a joint statement on Sunday assuring that all depositors at Silicon Valley Bank and Signature Bank of New York would be fully protected, and the Fed introduced a Bank Term Funding Program (BTFP) to help banks avoid selling government securities at a loss. Despite these actions, confidence in the banking industry has not been fully restored, as evidenced by the decline in bank stocks this week. This has led investors to adopt a risk-off mentality, resulting in a flight to safety with buyers investing in mega cap stocks such as Alphabet, NVIDIA, and Microsoft, which all gained over 12%. This has also affected other sectors, with the communication services, information technology, and consumer discretionary sectors outperforming, while the defensive-oriented utilities, consumer staples, and healthcare sectors also performed well. In addition, the Treasury market reflected a flight to safety, while oil prices dropped due to concerns over the economy. The 2-yr note yield and the 10-yr note yield also fell, possibly because of a belief that the Fed will not be able to raise rates as much as previously expected. Despite this, the CME FedWatch Tool shows that there is a 64.2% probability of the Fed raising rates by 25 basis points at the upcoming FOMC meeting. Finally, the European Central Bank raised its key policy rates by 50 basis points despite concerns surrounding Credit Suisse, citing high inflation projections.

The stock market had a turbulent start to the week as news of the banking sector fallout was digested by investors. The Federal Reserve, Treasury, and FDIC issued a joint statement that all depositors at Silicon Valley Bank and Signature Bank of New York would be fully protected, and the Fed introduced the Bank Term Funding Program to help banks avert selling Treasury and other government securities at a loss. However, this failed to restore calm to the capital markets, and banking stocks fell further.

On Tuesday, the stock market rebounded as bank stocks and the February Consumer Price Index weren't as bad as feared. The S&P 500 climbed, but was unable to break through its 200-day moving average, and retreated in the afternoon due to negative news about First Republic Bank and geopolitical concerns. However, a renewed buying effort among mega-cap stocks helped the market finish the session on an upbeat note, although still off its morning highs.

On Wednesday, concerns about the banking sector led to a risk-off trading environment as Credit Suisse's largest shareholder, Saudi National Bank, announced that it could not provide further financial help due to regulatory constraints. Market participants worried that this news would cause banks to become more risk-averse, which could slow economic growth and lead to downward revisions of earnings estimates. Weaker-than-expected retail sales and producer price data for February added to these worries. However, by the end of the day, gains in the mega cap space helped the market indices recover.

On Thursday, bank stocks remained under pressure at the beginning of the day, but a Wall Street Journal report suggested a potential private sector solution to the issues at First Republic Bank, which prompted a reversal in stock prices. It was later confirmed that 11 banks, including JPMorgan Chase and Bank of America, would make uninsured deposits totaling $30 billion into FRC. This news drove a broad rally effort, with rebounding bank stocks and strong leadership from mega-cap stocks.

Friday marked the quadruple witching options expiration day, with investors continuing to have a risk-off mentality due to ongoing pressure in the banking sector. Thursday's relief rally following news of First Republic Bank's cash infusion from 11 big banks totaling $30 billion was short-lived, and investors sold FRC again Friday after it provided a cash position update and suspended its dividend. Reports of banks borrowing from the Bank Term Funding Program and Fed's discount window for the week ending March 15 renewed investors' worries about the banking industry's health, leading to indiscriminate selling in bank stocks. Even banks viewed as potentially benefiting from fallout at smaller banks, like JPMorgan, suffered losses. However, there was underlying strength in the mega-cap space, with investors flocking to companies having strong balance sheets, being more resilient in an economic slowdown, and having minimal banking sector exposure, such as Microsoft, Alphabet, and NVIDIA, which was upgraded to Overweight from Equal Weight at Morgan Stanley. Overall, selling efforts were broad in nature, with the S&P 500 and other market indicators falling.