Dow futures plunge as Deutsche Bank becomes the latest pain point for banks

Dow futures fell Friday morning, along with S&P 500 futures and Nasdaq futures, as Deutsche Bank shares sold off due to rising default risks.

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Banking stocks actually fell on Thursday, as the market’s bull run faltered and diverged again. The Nasdaq closed solidly higher but far from its best, while the Russell 2000 hit a new 2023 low as Moody’s Investor Service warned of a broader banking contagion and economic fallout. Stocks rose of late as Treasury Secretary Janet Yellen pledged to “take additional action” on bank deposits if needed.

The first republic (FRC) slid to a record low and Backwest Bancorp (PACW) to its lowest closing level ever. But supraregional areas like KeyCorp (key) And Comerica (CMA) were also sold out, even with some giants like American bank (Buck) reach multi-year lows.

Meritage Homes (MTHKBH stock flashed amid strong buy signals KB major (KBH) profits. Microsoft (MSFT) was trading again above a buy point. Yum China (you can) broke out. VanEck Semiconductor ETF (SMH) erase a point of purchase, providing a way to play in the chip segment with NVDA shares and several extended semi-final models.

MTH stock and nvidia (NVDA) are on IBD Leaderboard. MSFT stock is at IBD Long-Term Leaders. Meritage and KBH are located at defect 50, along with many other home builders. Meritage Homes is Thursday’s stock from IBD.

But investors should remain wary. Yes, there is an attempt to go higher, but it is still a market correction. The rally bid remains divided and volatile, with the banking sector posting a massive negative.

Deutsche Bank is the last thing to worry about

Banking concerns shifted from regional US banks to European giants again on Friday.

DB stock fell 10% early Friday as the cost of insuring against default rose. Deutsche Bank shares fell 6% Thursday to a five-month low. The German giant has long been a troubled bank. Other European bank shares also declined.

In the US, regional banks and corporate giants like First Republic and BAC fell modestly to strongly before opening.

Moody’s: Wider Bank “disruption” risk

There is a growing risk that regulators “will not be able to rein in the current unrest without long-term and potentially severe repercussions within and outside the banking sector”. Moody’s Investor Service warned Thursday that this could lead to “more financial and economic damage than we anticipated.” However, the credit rating agency still expects policymakers to “succeed broadly”.

Banks and major indices came off their lowest levels this afternoon as Treasury Secretary Yellen said in prepared remarks to a House committee that the government “will be prepared to take additional action if necessary.”

That line aside, Yellen largely repeated remarks Wednesday before a Senate committee, when she said officials are not looking to extend a “universal” guarantee to all deposits at all banks. This comment helped trigger a bearish market reversal on Wednesday. However, Yellen previously indicated that any bank in difficulty will incentivize more deposit guarantees.

The FDIC aims to announce the fate of SVB Financial’s Silicon Valley bank over the weekend, Barron’s advisor said Thursday.

Dow jones futures today

Dow futures fell 1% against fair value. S&P 500 futures were down 0.9% and Nasdaq 100 futures were down 0.55%. Futures indicate that the S&P 500 will cross the 200-day line at the open on Friday.

The 10-year Treasury yield fell 10 basis points, to 3.31%. The two-year yield fell 22 points to 3.59%.

Crude oil futures fell more than 3%.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.

Join IBD experts as they analyze actionable shares in the bullish stock market on IBD Live

Stock market rise

An attempted rally in the stock market saw large intraday gains fade, although major indexes closed higher after a mixed mid-afternoon turn.

The Dow Jones Industrial Average rose 0.2% in stock market trading Thursday. The S&P 500 rose 0.3%, with Zion Bancorp (Zion), Comerica and KEY stocks were the worst performers. The Nasdaq Composite Index rose 1%. Small cap Russell 2000 fell 0.8%.

US crude oil prices fell 1.3 percent to $69.95 a barrel. Copper futures rebounded 1.9%, up 7.5% in six straight sessions of gains.

The 10-year Treasury yield fell 9 basis points, to 3.41%. The two-year yield fell 17 basis points to 3.81%.

Despite the Fed’s signals on Wednesday that the central bank would hike again, markets see a 66% chance of stalling in May, up from 50.1% on Wednesday and 39.7% on Tuesday. Investors expect the Fed’s interest rate cuts to begin this summer.

Exchange Traded Funds

Among the ETFs, the Innovator IBD 50 ETF (fifty(up 1.2%, while the Innovator IBD Breakout Opportunities ETF)fit) jumped 0.7%. iShares Expanded Technology and Software ETF (IGV) rose 1.5%, with Microsoft stock a major component. VanEck Vectors Semiconductor Corporation (SMH) increased by 2.7%. NVDA stock is one of SMH’s most important holdings.

Reflecting more speculative stories, the ARK Innovation ETF (ARK)ark(down 1.5% and ARK Genomics ETF)ARKG) gained 0.7%. Coinbase (currency) and the square parent roadblock (mint), both of which are among Ark Invest’s top 10 holdings, up more than 10% on Thursday.

SPDR S&P Metals & Mining ETFs (XME) rose 0.3% and the Global Infrastructure Development Fund (ETF) in the USA (cradle) decreased by 0.3%. US Global Gates Foundation ETF (Planes) went down 1%. SPDR S&P Homebuilders ETF (XHB) is closed directly below the break-even point. Energy Defined Fund SPDR ETF (xle) fell 1.4%. SPDR Health Care Sector Selection Fund (XLV) decreased by 0.2%.

SPDR Financial Selection Fund (XLFIt lost 0.7%, hitting a five-month low. The BAC stock is one of XLF’s notable holdings. SPDR’s S&P ETF fell 2.8%, its worst level since late 2020. First Republic, PACW, KEY and CMA shares are all holdings of KRE.

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Market rally analysis

For the second consecutive session, an attempt to rally the market pared the big intraday gains. On Wednesday, the major indexes reversed sharply lower. On Thursday, they closed higher, but that wasn’t the action you want to see in a market rally.

The Nasdaq index was still going strong thanks to big tech stocks such as Microsoft, Nvidia and… Meta platforms (meta). But it was an inside day, giving up more than half of its 2.5% retracement for the day.

The S&P 500 rebounded from the 200-day line, but hit resistance near the 50-day line. Invesco S&P 500 Equal Weight Fund (RSP), which was not dominated by those tech giants, down 0.35%, hitting a five-month low on the day.

Dow Jones tried to regain the 200-day streak, but pared the gains. Russell 2000 opened strongly but reversed lower as banking stocks plunged again.

The chip sector still looks strong. stock Nvidia, Aehr Test Systems (AEHR) and a few others above that, but they are generally extended. Many others, such as Applied materials (AMAT), near overbought areas, but not really outperforming the SMH ETF.

The home builders look strong. KBH and Meritage stock climbed towards their official buy points, but pared gains for the day.

YUMC stock broke from a flat bottom. Yum China’s earnings should boom in 2023 as Covid restrictions lift.

But narrow breadth.

A sustained recovery in the market is almost impossible if the banking crisis worsens. SVB Financial has been an outlier in many ways, so it was a bad sign to see other California-based banks, such as FRC stocks and PacWest, get squeezed. Much worse if super regional companies like CMA and KeyCorp start to shrink. BAC stock is at its worst level since 2020. Even c. B. Morgan Chase (ibd), among the best-capitalized banks, is testing 2023 lows and the 200-day line.

Former Federal Insurance Corporation (FDIC) chair Sheila Beer said: market surveillance He said on Thursday that the issuance of unrealized bond losses “presents a risk facing all banks,” not just regional players.

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What are you doing now

The market attempt to go higher is divided, volatile and news driven. It is not a definite uptrend.

Investors can try to play some of the leaders. But while some, like Nvidia and hold on (Onon) worked, and many others faded away. Anyone who has been aggressively buying stocks in the past couple of days is likely to experience at least modest losses.

So keep your exposure light, and cut your losses fast. With your winners, consider taking at least partial profits quickly to make sure you end up with winnings.

There is nothing wrong with staying all or all in cash until there is a sustained rally in the market with bank headlines playing in the background.

Either way, investors must remain engaged and ready to act. This means being prepared with up-to-date watch lists as well as devising your own exit strategies.

Read the big picture every day to stay in sync with the market trend, leading stocks and sectors.

Please follow Ed Carson on Twitter at @employee For stock market updates and more.

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