Stocks Ended Lower Yesterday, Bank Fears Weighed, While Investors Cheered Better Than Expected PPI Image: Bigstock Stocks closed mostly lower yesterday, but well off their intraday lows. And the Nasdaq eked out a small gain. Plenty of bank stocks opened lower yesterday after Moody's downgraded the U.S. banking sector on Tuesday, and put 6 banks on 'review.' And then word that Credit Suisse would not get any new funding from their largest investor (Saudi Arabi), sent the embattled Swiss bank plummeting to an all-time low. (Although, it should be noted that Saudi Arabia only declined because they were at their limit of percentage ownership and could not invest any further without incurring new regulations.) But Switzerland's central bank said later they would provide support to CS via added liquidity. Bank stocks and the broader market fell early on. But by the afternoon, stocks were making their way back up. Lost in all of this was a much better than expected Producer Price Index (PPI). Headline inflation fell -0.1% m/m vs. the consensus for 0.3%. On a y/y basis it came in at 4.6% vs. last month's 6.0% and views for 5.4%. The core rate (ex-food & energy), was flat (0.0%) on a m/m basis vs. the consensus for 0.4%. And on a y/y basis it came in at 4.4% vs. last month's 5.4% and views for 5.2%. Any other day that number would have been bid up. But not yesterday. However, the afternoon rally could very well have been people finally trading off that positive report. In other news, MBA Mortgage Applications were up 6.5% w/w with purchases up 7.3% and refi's up 4.8%. The Housing Market Index increased to 44 from last month's 42 and views for 41. Retail Sales slipped -0.4% m/m vs. expectations for -0.3%. Ex-vehicles it was off -0.1% vs. views for 0.2%. Ex-vehicles & gas it was flat (0.0%) vs. views for -0.9%. And the Empire State Manufacturing Index dropped to -24.6 vs. last month's -5.5 and the consensus for -7.7. There are clearly some pockets of weakness in the banking sector. But the big banks are in strong financial shape. And the number of smaller and mid-sized banks flagged for trouble seem relatively few compared to the size and depth of the financial system. The common theme to the current situation seems to be a lack of liquidity for some due to overly large investments into long-dated Treasuries. Arguably, the safest investment on the planet. Nevertheless, the people running those banks made poor decisions as they did not adequately plan for what they would do if/when interest rates went up, business activity slowed, and depositors needed access to their funds. But that's quite different than the sub-prime mortgage crisis and S&L crisis where banks were saddled with risky assets. That's why many see the current situation as being relatively contained. And that's why I think the panic selling over the last handful of days has been overdone. And I would not be surprised to see Monday, March 13, be the low of the recent pullback. Once we can get back to focusing on inflation (which is falling) and interest rates (which appear to be nearing the end of this rate hike cycle), I think the market is poised to go right back up. And this recent pullback could turn out to be a great entry point. To learn how to take advantage of the next leg up, be sure to read our latest commentary... Don't Miss Out On The Next Leg Up In The Market Best, Kevin Matras Executive Vice President, Zacks Investment Research |
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