Day Traders Diary

3/13/23

The major averages closed mixed as a plan to backstop all the depositors in failed Silicon Valley Bank, along with other extraordinary measures, failed to boost bank shares or the overall markets. The Dow Jones Industrial Average lost 90 points, or 0.28%, to close at 31,819. The 30-stock index, which posted its fifth straight day of declines with Monday's session, was able to pare losses after dropping more than 284 points earlier in the session. The losses were contained as some investors bet the financial shock could cause the Federal Reserve to pause interest rate hikes. The S&P 500 declined 5 points while the Nasdaq Composite actually rose 49 points or 0.45%.

The Cboe Volatility index (VIX), Wall Street's preferred fear gauge, reached a level not seen since late 2022 and neared territory considered highly risky, up nearly 2 points at 26.69. Meanwhile, Treasury yields tumbled Monday, helping to lend some support to equities.

A joint statement from the Fed, Treasury Department and the Federal Deposit Insurance Corporation said all Silicon Valley Bank depositors would have access to their money starting Monday. The Fed also said it is creating a new Bank Term Funding Program aimed at safeguarding deposits. The facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions.

Bank stocks remained under pressure following last week's slide, with JPMorgan Chase and Citigroup falling. Regional banks fell even more, led by a drop of more than 61% in First Republic. But investors bought up other areas of the market outside of banks, such as some technology stocks like Apple and defensive names including Johnson & Johnson and Eli Lilly.

Traders are pricing in about 2-to-1 odds that the Fed raises its benchmark borrowing rate by 0.25 percentage point at the March 21-22 meeting. But the market also is anticipating that by the end of the year, the central bank will lop off 0.75 percentage point in cuts, taking the rate down to a target range of 4%-4.25%. Current pricing indicates a terminal rate of 4.75% by May.

Goldman Sachs has gone even further, saying it no longer expects the Federal Reserve to hike rates at its meeting next week.

"This news really is really a deflationary shock that the Fed has to consider," said Gina Bolvin, president of Bolvin Wealth Management Group. "It's definitely a game changer."

February's consumer price index, the next data point to be released that can provide insight into the path of inflation, is slated to come out before the market opens Tuesday.