Market Insights

Stocks are making wild moves as investors pivot from worries about rate hikes to bank failures.

The S&P 500 dropped 4.5 percent between Friday, March 3, and Friday, March 10. It was the biggest weekly decline since mid-September. Ninety seven percent of of the index’s members lost value, including every major sector. The Cboe’s volatility index (VIX) also spiked to a five-month high.

The week began with attention focused on Jerome Powell’s testimony on Capitol Hill. The Federal Reserve chairman struck a mostly hawkish tone, saying interest rates would likely go “higher than previously anticipated.” Traders quickly priced in a 50 basis point hike on March 22, up from the previously expected 25 basis point move (according to CME’s FedWatch tool).

Then the bank failures hit. Cryptocurrency-focused Silvergate Capital (SI) collapsed on Thursday morning. Silicon Valley Bank, a financier of cutting-edge innovators, succumbed to an old-fashioned bank run a day later. That hammered banks, giving the financial sector its biggest weekly drop in almost three years. Markets quickly went back to expecting 25 basis points from the Fed.

The government shut down Signature Bank (SBNY), a similar institution, yesterday. Treasury Department officials structured the move in a way that depositors above the $250,000 FDIC limit will be made whole. That should let customers pay employees and other basic expenses, preventing a potential contagion effect.

The Fed additionally created a Bank Term Funding Program (BTFP) to prevent similar crunches.

Payrolls and Wages

Last week also brought key economic news that typically would have been more important. Payroll reports from the Labor Department and ADP showed more strong job growth. However wages rose less than expected and unemployment rose more than anticipated. Initial jobless claims also increased. Those second points could give the Fed less reason to be hawkish.

Interest rates and inflation are likely to remain a focus in coming sessions, especially with the consumer price index due tomorrow morning.

Financials took the biggest hit last week. SVB Financial (SIVB), the parent of Silicon Valley Bank, plunged 62 percent, while SBNY dove 38 percent. S&P Dow Jones Indexes said Insulet (PODD) will replace SIVB in the S&P 500 index. Another change could be announced soon, given SBNY’s collapse over the weekend.

Other big decliners were industrial metals, biotechnology and small caps. Safe-havens like consumer staples and utilities fell the least. Gold rose for a second straight week after holding $1,800.

Semiconductors also held their ground as investors focused on potential growth opportunities in artificial intelligence (AI). Arista Networks (ANET), another potential AI play that reported strong earrings on February 14, hit a new all-time high. General Electric (GE) was the index’s top performer after forecasting strong jet-engine demand.

Charting the Market

The S&P 500 briefly traded above the previous week’s high last Monday, but peaked before noon. It then started falling and soon crossed its 50-day and 200-day moving averages. The index would hit its lowest level since early January on Friday.

The result was a bearish outside week (with a higher high and a lower low). The index broke a rising trendline that began in mid-October. Both of those patterns may suggest price action is turning more negative.

Traders may now consider the March 2 low of 3928 as potential resistance. The December low of 3765 could be viewed as support.

The Week Ahead

Attention today is likely to focus on whether the government’s actions successfully stabilized the financial system. Then come several economic events that could help shape expectations for Fed policy.

First is the consumer price index (CPI) inflation report tomorrow morning.

Wednesday brings retail sales, producer price inflation and crude-oil inventories.

Initial jobless, housing starts and building permits are due Thursday morning.

The week ends with “quadruple witching” on Friday, plus industrial production and consumer sentiment.