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It was a slow start last week, but by the end of the week the stock market had regrouped and finished on a winning note that left the S&P 500 sitting near its best levels of the year. This week also looks set to start on a slow note, but whether it ends on a winning note will have a lot to do with how the market responds to some key happenings this week.
Major items on the market-moving docket this week include the April ISM Manufacturing (today) and Non-Manufacturing (Wednesday) PMI data, the FOMC meeting (Wednesday), the ECB meeting (Thursday), Apple’s (AAPL) earnings report (Thursday), and the April Employment Situation Report (Friday).
While Apple is the earnings headliner this week, it is another huge week of earnings reporting for the March quarter.
In brief, the news flow will be flowing at full stream, providing plenty of trading opportunities for individual stocks, industry groups, sectors, and the market as a whole.
Currently, the market as a whole is looking mixed and flattish. The S&P 500 futures are down three points and are trading fractionally below fair value, the Nasdaq 100 futures are down 19 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are up six points and are trading fractionally above fair value.
The big news this morning is that First Republic Bank (FRC) was seized by regulators over the weekend. In the wake of that move, JPMorgan Chase (JPM) answered an FDIC call and acquired the substantial majority of the bank’s assets and assumed its deposits and certain liabilities as part of a competitive bidding process that was approved by the FDIC.
This deal is expected to be modestly EPS accretive for JPM, which is up 4.2% in pre-market trading. According to CNBC, JPMorgan Chase CEO Jamie Dimon said First Republic’s failure doesn’t change the economic outlook. The U.S. will see a reduction in bank lending, but this situation is nothing like 2008 and this deal will stabilize the system.
Shares of FRC haven’t stabilized. They are down 34.2%; however, the SPDR S&P Regional Banking ETF (KRE) is flat in pre-market action. Market participants will be keeping a close watch on the behavior of the regional bank stocks, hoping to see price action that supports Jamie Dimon’s stabilization theory.
Separately, Exxon Mobil (XOM) is looking a little less stable this morning. It is down 1.7% after Goldman Sachs downgraded the energy giant to Neutral from Buy, noting among other things that its valuation looks less compelling than before.
Later this week we’ll hear if the Fed thinks the case for more rate hikes is also less compelling than before. Nick Timiraos of The Wall Street Journal penned an article today that suggests the Fed is poised to raise rates again on Wednesday by another 25 basis points but is also primed to debate the idea of pausing its rate hikes after that.
The market appears primed for this outcome — a rate hike and a pause signal — so it would be construed as a disappointment if the directive and/or Fed Chair Powell had a different tone.
For now, the tone is muted in front of a lot of noise coming the market’s way.
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Originally Posted May 1, 2023 – Primed to trade around another big week of news
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