Dow Jones futures and S&P 500 futures fell slightly early Friday, while Nasdaq futures were little changed ahead of the February jobs report. SVB Financial kept plunging overnight after triggering a bank stock sell-off that slammed the broad market Thursday. Treasury yields kept falling.
Oracle and Ulta Beauty reported earnings late.
The stock market rally reversed sharply lower Thursday as questions about banks' financials suddenly came to the fore. The S&P 500 and Nasdaq fell to critical support levels.
Bank stocks plunged as SVB Financial, parent of Silicon Valley Bank, cratered on a series of negative headlines while long-ailing crypto bank Silvergate Capital said it would shut down. Bank of America, JPMorgan Chase, Wells Fargo and Charles Schwab were among the high-profile losers.
SIVB stock continued to plunge late as fears of a bank run grew.
Investors should be cautious, waiting for the market rally to show renewed strength.
Key Earnings
ORCL stock fell 5% overnight after Oracle earnings topped but revenue fell short. Oracle stock skidded 5.9% to 81.75 on Thursday, falling below its 50-day line. Shares have been working on a 91.32 buy point from a deep cup-with-handle base.
ULTA stock edged lower in premarket action. Ulta Beauty earnings and revenue topped views, but same-store guidance was light. The beauty products retail giant dipped 0.8% to 519.93 on Thursday, just below its 21-day line. ULTA stock does not have a clear buy point.
Jobs Report
The Labor Department will release the February jobs report at 8:30 a.m. ET. Economists expect to see nonfarm payrolls up by 223,000, a big slowdown from January's 517,000, but that would still be a strong two-month start to the year. The jobless rate should hold at a 53-year low of 3.4%. Average hourly earnings should climb 0.3%, but the annual pay gain should pick up to 4.7%.
On Thursday, Labor reported initial jobless claims rose more than expected to their highest number since December. Challenger, Gray & Christmas reported that announced layoff plans are the highest to start a year since 2009.
The February jobs report, along with next week's CPI inflation report, could lock in expectations for half-point rate hike on March 22.
Dow Jones Futures Today
Dow Jones futures fell 0.4% vs. fair value, but off overnight lows. S&P 500 futures dipped 0.2%. Nasdaq 100 futures were flat.
The 10-year Treasury yield sank 11 basis points to 3.83%. The 2-year yield slumped 11 basis points to 4.79%.
Crude oil futures fell 1%.
The February jobs report will be sure to swing Dow Jones futures, Treasury yields and Fed rate hike expectations.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally got off to a decent start Thursday on rising jobless claims, but soon reversed lower on bank concerns. The major indexes steadily worsened, closing near session lows.
The Dow Jones Industrial Average slumped 1.7% in Thursday's stock market trading. The S&P 500 index tumbled 1.85%, with SIVB stock, First Republic Bank and Schwab the biggest losers. The Nasdaq composite skidded 2.05%. The small-cap Russell 2000, which has a lot of financial components, plunged 2.8%.
U.S. crude oil prices fell 1.2% to $75.72 a barrel.
The 10-year Treasury yield fell 5 basis points to 3.92%. The two-year Treasury yield plunged 16 basis points to 4.9%, while the six-month T-bill yield dipped 3 basis points to 5.28%.
Fed rate hike expectations have shifted, but not decisively.
As of early Friday, Markets see a 62% chance of a 50-basis-point move on March 22, down from Thursday's 68.3% and Wednesday's 78.6%. The odds spiked from around 30% before Fed chief Jerome Powell's hawkish testimony on Tuesday. Markets are now pricing in 75 basis points of rate hikes over the next three Fed meetings, with another quarter-point increase likely over that time.
Bank Stocks
SIVB stock plummeted 60% to 106.04, the lowest price since 2016. SVB Financial late Wednesday announced a $1.75 billion share sale. The Silicon Valley Bank parent also cut guidance. Deposits are dwindling due to startups facing a funding drought. There are also big concerns about SVB's loans to the tech industry.
SIVB stock plunged over 60% in heavy premarket trade Friday. Peter Thiel's Founders Fund is advising companies to pull money from Silicon Valley Bank, Bloomberg reported. SVB Financial still has to price that share offering.
Silvergate Capital, which has been in free-fall for months, announced late Wednesday that it would shut down, with its Silvergate Bank liquidating. SI stock dived 42% on Thursday.
The SVB and Silvergate news slammed financials, already under pressure as the extremely inverted yield curve upends the traditional borrow short/lend long lending strategy.
KeyCorp, which warned on net interest margins earlier in the week, slumped 7.2% Thursday. Western Alliance Bancorp tumbled nearly 13%, and FRC stock dived 16.5%.
JPM stock skidded 5.4%. On Tuesday, JPMorgan fell below a 138.76 buy point and its 50-day line. BAC stock retreated 6.2% to its lowest levels since October. WFC stock also lost 6.2%, tumbling below its 200-day line after breaking below its 50-day earlier in the week.
SCHW stock plunged 12.8%, gapping below the 200-day line and the low of its base. JPMorgan offered a block sale of 8.5 million Schwab shares, Bloomberg reported. SCHW stock is at its worst levels since October.
On Friday, banking giants were little changed or edged lower after big losses Thursday and for the week. But FRC stock sold off again, with Western Alliance and KeyCorp also down
Investors will take a much-closer look at banks' balance sheets and capital levels, something that hasn't been a real concern up until now. Banks are pushing up deposit and CD rates significantly, while long-term rates lag. Many banks are sitting on sizable unrealized losses on loans and other securities.
If banks rein in lending, that could rapidly chill the economy. Meanwhile, SVB Financial and Silvergate Capital's woes raise concerns about their tech and crypto clienteles.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF tumbled 3.1%. The iShares Expanded Tech-Software Sector ETF slumped 2.3%, with ORCL stock a big IGV component. The VanEck Vectors Semiconductor ETF gave up 1.9%.
Reflecting more-speculative story stocks, ARK Innovation ETF slumped 4.2% and ARK Genomics ETF 3.8%.
SPDR S&P Metals & Mining ETF shed 2.6% and the Global X U.S. Infrastructure Development ETF 2.2%. U.S. Global Jets ETF descended 3.1%. SPDR S&P Homebuilders ETF stepped down 1.6%. The Energy Select SPDR ETF retreated 1.4% and the Health Care Select Sector SPDR Fund 1%.
The Financial Select SPDR ETF plunged 4.1%, with JPM stock, Wells Fargo, Charles Schwab and Bank of America all notable holdings. The SPDR S&P Regional Banking ETF dived 8.2% to a three-year low. SIVB stock is a notable KRE holding, along with KeyCorp and Western Alliance.
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Market Rally Analysis
The stock market rally had a highly negative day, with a downside reversal damaging the major indexes and leading stocks.
The S&P 500 opened by rising above its 50-day line, but soon hit resistance at the 21-day moving average and reversed lower to below its 200-day line and its March 2 low.
The Nasdaq initially rose above its 21-day line, but then reversed to below the 200-day line. The tech-heavy composite briefly undercut its 50-day before settling just above that level.
The Dow Jones knifed below its 200-day line to a four-month low.
The Russell 2000 fell decisively below its 50-day line, all the way to its 200-day line.
Some leaders held up, but most did not.
Banking concerns triggered by SIVB stock, Silvergate and KeyCorp don't mean a financial crisis is on the way. Banks, especially the giants such as JPMorgan and Bank of America, are far-better capitalized than they were in the 2007-2009 financial crisis. But the fact that the words "financial crisis" are even being mentioned is a big shift.
If banks rein in lending aggressively, that would hit the broader economy quickly. That also would raise the already-hefty risk that the Federal Reserve will overshoot rate hikes, triggering a hard landing. That also could spur the Fed to be more cautious with rate hikes.
Friday's jobs report will be important, but it's the market reaction that matters. Keep in mind that if the economy suddenly stalls, lagging employment data won't offer a warning.
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What To Do Now
With the S&P 500 and other major indexes heading south once again, it's not a time to add exposure. Investors should be looking to cut losses on recent buys that are struggling.
Perhaps the market rally will once again find support with a tame jobs report or upcoming inflation data, but hope isn't a strategy. The key indexes are on the cusp of breaking decisively lower.
On the upside, wait for the S&P 500 and Nasdaq to retake their 21-day lines. If that happens, new buying opportunities will emerge. So keep working on those watchlists.
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