Stocks precarious, about to trip and fall -Morgan Stanley
DJI, S&P 500 rise, but Nasdaq declines
Energy leads S&P 500 sector gainers; comm svs weakest group
Dollar slips; bitcoin, gold decline; crude up ~4%
U.S. 10-Year Treasury yield jumps to ~3.52%
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STOCKS PRECARIOUS, ABOUT TO TRIP AND FALL -MORGAN STANLEY (1340 EDT/1740 GMT)
Stocks may be the next domino to fall as investors realize earnings guidance is too unrealistic. At least that's how Michael Wilson, equity strategist at Morgan Stanley, sees it.
According to Wilson, bond markets no longer appear to believe the Fed's guidance. Although, Fed Chair Powell has cautioned that rate cuts are unlikely this year, Wilson notes that the bond market has priced in 100 basis points of cuts starting in June.
To Wilson, the bond market seems to be saying the U.S. economy is destined to fall into a recession or that the banking crisis is far from over and will require more explicit Fed action to deal with it.
Given the events of the past few weeks, Wilson believes that earnings guidance is looking "more and more unrealistic," and equity markets are at greater risk of pricing in much lower estimates ahead of any hard changes in the data.
"This is typically how bear markets end - i.e., P/E multiples fall precipitously and unexpectedly, catching investors off guard," writes Wilson in a note.
Wilson adds that the recent underperfomance of small caps and low quality stocks suggests "it could be imminent."
WAITING FOR THE FED'S H.8 BANKING DATA GODOT (1308 EDT/1708 GMT)
Should investors breathe easier as liquidity issues in the banking sector appear to be contained despite what Moody's Investors Service is calling very significant funding strains and deposit runs at some banks.
All eyes will turn to the Federal Reserve's weekly H.8 data on commercial banks' assets and liabilities that will be released at 1615 EDT (2015 GMT) on Friday to better gauge the latest stress among U.S. banks.
The Fed's weekly balance sheet released March 23 showed total bank borrowings were stable compared to the prior week, suggesting liquidity strains may not be as widespread as the stock market indicated last week, UBS said in a note on Monday.
Aggregate bank borrowings as of March 22 from the Fed's discount window, plus the new Bank Term Funding Program (BTFP), were down by $1 billion from the previous week to $164 billion, UBS said.
Borrowings from the Fed discount window declined to $43 billion, while the amount banks borrowed through BTFP rose by a similar $41 billion week over week, UBS said.
"Thus we think the market should breathe easier, as the total data set this week implies liquidity issues appear contained," it said.
But the H.8 data after the bell last Friday showed a significant shift in deposits from small banks to large banks, as well as the first outright decline in small banks' deposits since 1986, Moody's said in a note.
Other notable trends among the non-seasonally adjusted data included a sharp rise in non-deposit borrowings and cash at U.S. domestically charted banks of all sizes, Moody's said.
The weekly data showed large banks gained $120 billion in deposits, while small banks lost $109 billion. There also was a decline in deposits in foreign banks of $65 billion for the week ended March 15.
In aggregate, last week's H.8 data suggest a decline in deposits of $53 billion in the U.S. banking system deposits, Moody's said.
The banking crisis sparked by Silicon Valley Bank's failure on March 10 will be contained thanks to the Fed's emergency liquidity facility, said Ed Yardeni, president and chief investment strategist at Yardeni Research.
"We'll know if the banking system isn't as resilient as we think if we see deterioration in the Fed's weekly H.8 data," Yardeni said in a note on Sunday.
THE BEAR WON'T END UNTIL INVESTORS AND STOCKS BREAK UP (1100 EDT/1500 GMT)
Over the past three weeks the economy and the banking system have become more frayed, yet Philip Palumbo, founder, CEO and chief investment officer at Palumbo Wealth Management, says markets have remained pretty resilient, but investors may still get their hearts broken.
Palumbo is reiterating his call for a recession, and he believes that the alternate economic view remains based almost exclusively on strong employment trends, which are not yet wavering, despite increased news of layoffs.
"It is hard to dispute that recessions are hard to come by when employment is strong, so for any recession forecast to be correct, it requires some weakening in the employment data," Palumbo says.
"The banking crisis could be the event that triggers it."
In his view, what matters here is how this bank run saga will impact lending practices. It only makes sense for banks to respond to the bank runs by tightening lending standards and therefore lending less than they otherwise might have. That alone is more than enough to put a serious crimp into economic activity.
Coupled with office property market weakness, Palumbo says it's "getting increasingly difficult to see how the banking sector muddles through this period without some significant pain. All that means is lending standards are likely to get even tighter and that is a major headwind for the economy."
However, he says the stock market appears unwilling to see this reality. It continues to look for a reason to believe that this economy will deftly skirt these obstacles and continue to grow, which to Palumbo, appears to be a perfect setup for a fall.
Palumbo's bottom line is that "The bear cycle is not over; there are still far too many optimists out there. The stock market has stolen their heart, but they love it anyway. This bear ends when there is no more love."
WALL STREET BOUNCES AS BANKS RISE ON SVB DEAL (1015 EDT/1415 GMT)
Wall Street is rallying early on Monday after First Citizens BancShares Inc FCNCA.O said it would acquire the deposits and loans of failed Silicon Valley Bank, a deal that eased some worries about the banking crisis.
Under the deal, unit First–Citizens Bank & Trust Company will assume SVB assets of $110 billion, deposits of $56 billion and loans of $72 billion.
Financials .SPSY are leading in the early going, up 1.22%, with real estate .SPLRCR one of two decliners among the 11 S&P 500 sectors, down 0.25%.
Small caps .RUT and transports .DJT are gaining, while value .IVX is outpacing gains in growth .IGX.
JPMorgan Chase & Co JPM.N, Bank of America Corp BAC.N and Wells Fargo & Co WFC.N are among the top contributers to the surge, rising 1.57%, 3.56% and 3.37%, respectively.
The KBW Bank index .BKX is up 2.60%, while in Europe the STXE 600 banks index .SX7P is gaining 1.55%.
All eyes now will be on the Federal Reserve's weekly H.8 data on the assets and liabilities of commercial banks, which will be released after the bell on Friday.
Here is a snapshot of where markets stood a little more than 30 minutes into the trading day:
CHIP STOCKS AMONG 2023'S GOLDEN BOYS (0900 EDT/1300 GMT)
Chip stocks have shined brightly this year.
The Philadelphia SE Semiconductor index .SOX is up a little more than 23% so far this year versus a 17.5% rise for the broader technology sector .SPLRCT, a 13% rise for the Nasdaq Composite .IXIC, and a 3.4% gain for the benchmark S&P 500 index .SPX.
Last week, the SOX thrust to its highest level in nearly a year. This, after the index used the former neckline of an inverse head & shoulders bottom as support:
After losing nearly half its value from its January 2022 high to its October trough, the SOX this January completed an inverse head & shoulders, which is a bullish reversal pattern, with a neckline breakout.
Frequently, once price exceeds the neckline traders will look for a retracement back toward this line, where it will then act as support. Upon a successful test of the support, the developing advance will resume.
The March 23 high at 3,216.322 is now resistance, while the broken neckline is support around 2,815.
The inverse head & shoulders minimum pattern projection still calls for an eventual return to levels in excess of 3,800. Such a rally would put the SOX within striking distance of its intraday peak of 4,068 set Jan. 4, 2022.
Coming back under the former neckline can suggest risk the pattern is failing.
Meanwhile, 27 of the 30 SOX members are higher year-to-date. But, of note, nine of the top 10 gainers are chipmakers as compared to equipment makers:
That said, since early March, the chipmaker/equipment maker ratio has been caught in a range. A range breakdown may signal a more sustained shift back in favor of equipment makers.
FOR MONDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
Early market snapshothttps://tmsnrt.rs/3Klk3qh
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)</body></html>
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