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Stock Market Recap & Outlook (3/17/23) – Continued Banking Concerns Amongst Surprising Strength

The market shows surprising strength this week with most indices recording gains. However, banks, energy, small caps, and more continue to get hammered. With the bank sector continuing to reveal weakness and a coming Fed rate decision, what should we expect going forward? Read the review and outlook below!

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Weekly Market Review


Banking scares that surfaced late last week continued to worry investors throughout this week. Continued developments of the situation and actions form the Fed, Treasury, and FDIC kept us all on our toes. Those actions were designed to shore up confidence in the banking industry, but price action did not reflect that.

With investors lacking confidence, a risk-off mentality was behind most price action this week. Certain mega-caps viewed as distant from the banking fallout were bought hand-over-fist. Companies with strong balance sheets and perceived recession resiliency, like $GOOG, $NVDA (sorry TagTrades), and $MSFT. These stocks all gained more than 12% this week.

$MGK, the mega-cap growth ETF from Vanguard was up over 5% this week, helping to prop up returns for the main indexes despite an otherwise weak market.

A flight to safety also showed itself through an outperformance of defensive sectors like utilities (up over 3%), consumer staples, and health care sectors (both up over 1%).

Treasury note yields tanked this week, driven by a belief that the Fed won’t be able to raise rates as much as previously thought in lieu of the banking issues. However, the CME FedWatch Tool shows a 59% probability of 25 basis point hike at the next meeting, and a 52% of another 25 basis point hike at the May meeting after that.

Meanwhile, the European Central Bank agreed to raise its rate by 50 basis points this week despite concern surrounding Credit Suisse ($CS)


Monday started a volatile week for us after a busy weekend of banking sector news. The market learned through a joint statement from the FDIC, Treasury, and Fed Market that all depositors at Silicon Valley Bank and Signature Bank of New York would be fully protected even though both had been taken over by regulators.

he Fed also introduced a Bank Term Funding Program that will help banks avoid selling government securities at a loss by allowing them to pledge those securities to the Fed, which will value them at par, as collateral.

These items together makes it so that all depositors would not lose money and that banks would have a different avenue to raise liquidity through the BTFP rather than selling assets at a loss like $SVB did. Smart moves, in my opinion, however they did not calm the stock markets. In fact, their approach created a feeling that this banking issues is larger than we initially thought.

Regional Banking ETF $KRE fell another 12% and SPDR S&P Bank ETF %KBE fell another 10% with the biggest individual losers being $FRC, $WAL, $CMA, and $PACW.

Still, the main indices spent a good portion of the session in positive territory thanks to gains in mega-caps as stated in the summary.

Treasury yields declined as a potential less aggressive Fed is priced in due to this bank fallout and the potential for it to have a disinflationary impact on the economy.


Stocks opened higher, bolstered by strength in the bank stocks and a small measure of relief that the February Consumer Price Index (CPI) wasn’t much worse than feared.

The quickly oversold market brought some opportunistic trading moves. The S&P 500 would climb as much as 2.1% to 3,937 before stalling at the test of its 200-day moving average (3,939).

Treasuries were selling off with some of the safety premium they had enjoyed in recent sessions being drained away and CPI data influencing prices. 

The rebound momentum reversed after failing to break through its 200-day moving average. Bank stocks began to pull back due to a report from the S&P that they had put $FRC on a credit watchlist shortly after Moody’s had downgraded the US banking system to Negative from Stable.

The day looked to end poorly excepted for a large buying effort in the last 45 minutes of the day that left major indices ending on an upbeat note.

Data on Tuesday was the CPI release and the NFIB Optimism Index.

Total CPI was up 0.4% MoM in February, in line with expectations, and up 6% YoY. This was the smallest 12-month increase since September 2021. Core CPI was up 0.5% MoM against a consensus of 0.4%. The key takeaway from the report was that inflation is still (no surprise here) well above the 2% target. Banking problems have mainly taken a 50 point hike off of the table of the next meeting, this CPI reading definitely keeps a 25 point hike as a possibility. Not raising rates may signal that the banking issues are bigger than people think, so the Fed must tread carefully here.

The February NFIB Small Business Optimism Index had a slight increase to 90.9 from 90.3 last month.


Cautious trading was back in play. Selling interest on financials picked up after Credit Suisse’s ($CS) largest shareholder said they can’t give additional financial help due to regulations.

This news brought worries that banks may be more risk-averse, tighten their lending standards, and manage their balance sheets more conservatively. Those measures would slow economic growth and lead to further downward revisions to earnings estimates. So, it was not surprising that cyclical areas of the market were under the most pressure.

Things shifted by the close. Some nice gains in the mega cap space had the main indices close near their best levels of the day.

The upside moves were also helped along by the Swiss National Bank saying “Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity.”

Data on Wednesday brought us the February Retail Sales reading, the PPI reading, and a number of other less significant pieces that I won’t mention.

February retail sales fell by -0.4% versus a consensus of +0.2%. Excluding autos the number was -0.1%, in line with expectations. The key takeaway from the report is that there were declines in most retail sales categories following large gains in January, suggesting consumers are being more conscious about their spending budgets.

February producer price index came in at -0.1% versus an expected 0.3%. Core PPI was flat compared to an expected 0.4% increase. This is overall a good inflation report, and should be pleasing to the Fed.


It shaped up to be a pretty good day in the stock market, but it didn’t start out that way. It started out with bank stocks remaining under pressure and Treasury yields declining in continued flights to safety.

At their lows for the day, the Dow, S&P 500, and Nasdaq were down over .5% as news came out that the European Central Bank agreed to raise its key policy rates by 50 basis points due to inflation being projected to remain too high for too long.

Sentiment shifted around midmorning, though, when a Wall Street Journal report highlighted a potential solution to the issues at First Republic Bank ($FRC). The report suggested big banks had been discussing a capital infusion deal for FRC totaling $30B.

Also, sentiment in the banking sector improved as Treasury Secretary Yellen told the Senate Finance Committee that “Americans can feel confident that their deposits will be there when they need them.”

For data on Thursday we received the Weekly Initial Claims reading, the Housing Starts report, and the February import/export data.

The Weekly Initial Claims came in well under the expectation at 192K. With initial claims were back below 200,000, we see that employers are reluctant to let workers go.

February Housing Starts hit 1.45 million, beating the expectations by over 100,000. Building Permits  hit 1.524 million, beating expectations by almost 200,000. The key takeaway from the report is that the stronger-than-expected activity wasn’t just a multi-unit story. Single-family starts were up 1.1% month-over-month while single-family permits increased 7.6%.

February Import Prices -0.1, February Import Prices ex-oil 0.4%, February Export Prices 0.2%, and February Export Prices ex-ag. 0.1%. The takeaway here is the moderation in year-over-year changes. Import prices were down 1.1%, versus up 11.4%, for the 12 months ending February 2022. Export prices were down 0.8%, versus up 16.8% for the 12 months ending February 2022.


On Friday’s quadruple witching options expiration day, investors were thinking risk-off again. Thursday’s strong finish was largely a relief rally on news. That relief short lived and investors sold FRC again on Friday following a dividend suspension.

Market participants were also reacting to reports that banks borrowed $11.9 billion from the Bank Term Funding Program and a record $153 billion from the Fed’s discount window for the week ending March 15, exceeding anything during the financial crisis. More and more items to digest when thinking about the health of the banking industry. Bank stocks were largely down for the day.

Selling efforts were broad in nature, excluding some mega-cap names.

Friday had an industrial production release and the Consumer Sentiment Index preliminary release for data.

Total industrial production was unchanged month-over-month in February, compared to an expected 0.5% increase. The capacity utilization rate held at 78%, also compared to an expected 0.5% increase. The key takeaway from the report is that industrial production activity is softening, evidenced both by the year-over-year decline in total production and a capacity utilization rate that is near its lowest level since September 2021.

The preliminary University of Michigan Consumer Sentiment Index for March dropped to 63.4 from 67 last month. It was expected to increase to 67.2. In the same period a year ago, the index stood at 59.4. Roughly 85% of responses had been recorded prior to the failure of Silicon Valley Bank. The key takeaway from the report is the moderation in inflation expectations, which will please the Fed somewhat, although year-ahead inflation expectations still remain well above the 2.3-3.0% range seen in the two years prior to the pandemic.

Overall, 2 of the 3 main indices ended the week on a gain. Mega caps and defensive sectors ended higher while energy, financials, industrials, and materials made substantial losses during the week.

Dividend Dollars’ Outlook & Opinion

That’s it for the recap. Now for my opinion!

This week was heavy with economic data (two key inflation reports) and plenty of banking news to keep up with. Though both inflation reports were not negative, both were overshadowed by investor anxiety related to banking.

With all of the fear surrounding banking and the treasury market volatility, it did not feel like a strong week for the markets. However, it surprisingly was!

SPX ended below all of its key moving averages at the end of the week, though it did temporarily break above the 200 day and 100 days averages on Thursday. Friday it struggled to get back above those marks.

A number of indicators have surprisingly moved into bullish territory this week including VIX OI change, ETF OI change, and VIX OI put/call ratios. SPX OI put/call ratios and general equity OI changes worsened over the week.

Banking sector uncertainties and rate changes signal more volatility to come, even though markets may continue to trend slightly higher overall, especially with a light economic calendar next week (except for the interest rate decision).

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.


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