Before the Bell: First Republic Now Junk, Credit Suisse Saved, Tech Megacaps Are New Safe Haven
Premarket action on Thursday had the three major U.S. indexes trading mixed. The Dow Jones industrials were down 0.15% and the S&P 500 down 0.06%, while the Nasdaq was 0.30% higher.
Eight of 11 market sectors closed lower Wednesday. Energy (−5.42%) and materials (−3.28%) dropped the most. Communications services (1.50%) and utilities (1.34%) posted the day’s best gains. The Dow closed down 0.87%, the S&P 500 down 0.70% and the Nasdaq Composite closed up 0.05%.
Two-year Treasuries declined by 27 basis points to end Wednesday at 3.83%, and 10-year notes retreated 13 basis points to close at 3.51%. In Thursday’s premarket, two-year notes were trading at around 4.02% and 10-year notes at about 3.51%.
Wednesday’s trading volume was above the five-day average. New York Stock Exchange losers outpaced winners by 2,349 to 677, while Nasdaq decliners led advancers by more than 2 to 1.
Among S&P 500 stocks, Charles Schwab Corp. (NYSE: SCHW) added 5.06% on Wednesday. Company executives and directors purchased nearly $7 million in the company’s stock on Tuesday and Wednesday in a show of confidence that the brokerage and banking firm was well set up to weather investor worries about U.S. banks.
Leading Wednesday’s losers, First Republic Bank (NYSE: FRC) dropped 21.37%, giving back most of the 27% gain it had ginned up on Tuesday. Bloomberg reported late Wednesday that the bank has begun exploring its strategic options for bolstering liquidity and has not ruled out a sale. Rating agencies Fitch and S&P downgraded the bank’s credit rating to junk status earlier in the day. S&P put the bank on negative credit watch after reducing the rating from A− to BB+. Fitch dropped the bank five notches, from A− to BB, with a negative ratings watch.
The producer price index (PPI) fell by 0.1% in February, well below a consensus estimate for a pick-up of 0.3%, and core PPI was unchanged, again well below the consensus. This was good news for the Fed’s inflation fighters but not such good news for intermediate demand for goods.
That threat to consumer spending sent oil prices to a new 52-week low of $67.52. Oil inventories have been rising internationally because demand has been soft. Crude traded up about 0.8% early Thursday.
Before U.S. markets open on Thursday, the weekly report on new claims for jobless benefits will be released. Economists have forecast an increase of 215,000, slightly more than the prior week’s increase of 211,000. The monthly report on housing starts is expected to show an increase of about 4,000.
Wednesday’s biggest story was Credit Suisse Group AG’s (NYSE: CS) search for liquidity after its largest investor, the Saudi National Bank, said it was unable to provide further assistance. The Swiss National Bank rode to the rescue late in the day, promising to provide $54 billion to shore up Credit Suisse. Shares of the bank fell nearly 14% on Wednesday and traded up more than 8% in Thursday’s premarket.
A more interesting story may be investors’ Wednesday flight to the safe haven of … wait for it … tech megacaps. Alphabet Inc. (NASDAQ: GOOGL) added 2.28% on Wednesday, Meta Platforms Inc. (NASDAQ: META) added 1.92%, Microsoft Corp. (NASDAQ: MSFT) added 1.78%, Amazon.com Inc. (NASDAQ: AMZN) added 1.39% and Apple Inc. (NYSE: AAPL) added 0.26% to lift the Nasdaq to a positive close. Wednesday’s tumbling bond yields provided the boost for these tech biggies.
Over the past five trading sessions, Meta stock is up 6.91% (firing thousands of employees is good), Microsoft is up 4.63% (dumping billions into ChatAI is good), Amazon is up 2.43% (satellite internet service is good, and retiring $10 billion in debt is also good), Alphabet is up 1.97% (integrating chatbot with Google Docs is good) and Apple is up 0.08% (just being Apple is good).
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