Indulge us why we do a little perspective taking here to begin a day that is expected to feature a soundly higher open for the major indices.
On March 8, shares of SVB Financial (SIVB) and Signature Bank (SBNY) closed at 267.83 and 103.35, respectively. The S&P 500 closed at 3,992.01. Before the end of trading on March 10, Silicon Valley Bank was taken over by regulators. The same fate awaited Signature Bank on March 12.
These were deemed “bank failures,” yet they were also identified by the Treasury Department, Federal Reserve, and FDIC as “systemic risks.” Accordingly, the Fed scurried to announce a special Bank Term Funding Program; meanwhile, there were assurances given that all depositors, including uninsured depositors, at these banks would be made whole.
Almost immediately, there were demands for the Fed stop raising rates so as not to create any further dislocation for the financial system. Some critics even called for rate cuts.
Subsequent to the fallout of these bank failures, Credit Suisse’s (CS) financial condition also came under the microscope. This past weekend, it was acquired by UBS (UBS) in a brokered deal by the Swiss National Bank, which UBS was clear in saying was an “emergency rescue” of Credit Suisse.
There are reports this morning that First Republic Bank (FRC), which plummeted 47% yesterday, leaving it down 89% from its closing price on March 8, is being advised about pursuing strategic options, including a possible sale.
And so, today, the S&P 500 is poised to open trading little changed from where it closed on March 8.
Currently, the S&P 500 futures are up 34 points and are trading 0.9% above fair value. If that indication holds, the S&P 500 should start the day around 3,987.
Separately, the Nasdaq 100 futures are up 76 points and are trading 0.6% above fair value. That puts them on track to begin the session around 12,638, or about 3.5% higher than where it closed on March 8. The Dow Jones Industrial Average futures are up 309 points and are trading 0.9% above fair value, leaving them on track to start the day around 32,534, which would be less than 1.0% below the closing level seen on March 8.
This morning’s favorable indications are being attributed in large part to a Bloomberg report that the Treasury Department is looking at ways to guarantee all bank deposits, if necessary, without congressional approval. Some see this type of explicit guarantee as the key to choking off any subsequent deposit runs on smaller banks, and stabilizing the banking system, so this report is going a long way toward boosting investor sentiment this morning even though it isn’t an official policy.
Still, the mere idea that it is being discussed seems good enough for this market, which feeds on policy puts like Audrey II in the Little Shop of Horrors feeds on humans — eating them up with great delight, but turning cranky when the next meal isn’t readily available.
We would venture to guess that the stock market’s resilient stand following the banking industry upheaval is also because it smells the scent of a Fed policy pivot. Be that as it may, if the Fed wanted a reason to raise rates again tomorrow, it need only look at the standing of the stock market, which is chomping at the bit it seems to hear that the Fed is pausing to assess further the impact of the bank failures or providing a “dovish hike,” where it raises only 25 basis points and declares resolutely that it is going to take some added time to asses the impact of the bank failures on the broader economy.
Either seems to be a win-win for the stock market, which is why it is trading with some renewed momentum in front of the meeting. To be sure, the stock market feels less anxious than it did only a week or so ago. We suppose the Fed and the Treasury deserve some credit for that, but it’s always easy to be the good guy when you are quick to give the market what it wants.
So, the S&P 500 will be back just about to where it started trading on March 9, which, ironically, is the same calendar day in 2009 that marked the bottom of the financial crisis when policy puts were being spoonfed to the market.
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Originally Posted March 21, 2023 – Market getting what it wants
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