Stock futures were lower Friday morning as investors processed a chaotic day of news flow Thursday that ended with a consortium of 11 major US banks teaming up to deposit $30 billion into First Republic (FRC) in an effort to stabilize the banking system.
By 8:30 AM ET, Dow futures were down about 0.7%, S&P 500 futures were down 0.6% and Nasdaq futures were down 0.3%.
Shares rose sharply Thursday after news broke throughout the day that major banks led by JPMorgan (JPM) and Bank of America (BAC) would inject First Republic with capital in what amounted to an industry bailout of the struggling bank.
The firms finally announced their deal to backstop First Republic about half an hour before market close.
Speaking to Yahoo Finance Live on Thursday, longtime banking analyst Dick Bove said that after these steps, the banking crisis will soon be over.
Shares of First Republic, which was halted several times Thursday due to volatility, fell about 13% in pre-market trading Friday. The broader banking sector was also lower at the beginning of Friday.
Investors also kept an eye on crude oil prices, with WTI crude trading near $68.80 a barrel, a roughly 15-month low as oil prices have come under heavy pressure over the past week.
The Treasury market will also remain a focus with 10-year yields near 3.58% early Friday, just over a week after peaking at 4%.
In a note to clients on Thursday, Bespoke Investment Group analysts highlighted how some of the recent volatility in the Treasury market — particularly with shorter-term Treasuries typically more sensitive to Fed expectations — likely stems from “forced ( that is, non-discretionary) buying and selling, and the prices agreed upon by price-insensitive buyers or sellers do not necessarily reflect all available information.”
Another example is the massive inflow of money into money market funds this week, reported by ICI: the fund’s total assets increased by 2.5% or $121 billion, and money funds are forced to put that money to work, which contributes to the buying pressure at short-term interest rates.” the company wrote. “Plunging account returns and very high volatility are consistent with the idea that the money fund flows are forcing purchases in specific markets.”
In a note to clients on Friday, Thomas Mathews, senior market economist at Capital Economics, echoed this view, noting that the front of the Treasury curve now implies that the Fed’s benchmark rate will be about 2 percentage points lower in 2023 than where investors are only a week expected. past.
“We believe investors are now underestimating how much central bankers will raise interest rates in the coming months,” Mathews wrote. “As such, we suspect the rally could turn in short-dated bonds.”
The Fed will announce its next policy decision on Wednesday, March 22, with investors estimating about an 80% chance that the central bank will raise rates by another 0.25%, according to CME Group data.
Friday’s corporate earnings schedule is uneventful, with the economic calendar bringing US investors the first look at consumer confidence in March from the University of Michigan as the key highlight.
Friday also marks quadruple witches in US markets, with contracts on individual stock options and futures, as well as index options and futures, all expiring at today’s closing price.
There will also be a rebalancing in some sectors of the S&P 500, with S&P reclassifying 14 stocks in the index into new sectors as of today’s close.
The most notable names on the move are Target (TGT), Dollar General (DG), and Dollar Tree (DLTR), which will move from the Consumer Discretionary (XLY) sector to Consumer Staples (XLP). Other notable companies moving industries include Visa (V), Mastercard (MA), and PayPal (PYPL), moving from Technology (XLK) to Financials (XLF).
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