Technology stocks were the beneficiary of a tumultuous week for global markets as concern mounted that the turmoil rocking the banking sector will tip the global economy into recession.
(Bloomberg) — Technology stocks were the beneficiary of a tumultuous week for global markets as concern mounted that the turmoil rocking the banking sector will tip the global economy into recession.
The Nasdaq 100 rose 5.8% to notch its best week since November, despite a slump Friday, as investors snapped up old standby favorites in the tech sector, including Microsoft Corp. and Alphabet Inc., on bets the Federal Reserve would temper its tightening path.
“They’ve been on a strong run so far this year. Much of the stress now obviously is focused in financials. And it may be that the money has shifted into tech,” Kelly Bogdanova, a vice president and portfolio analyst at RBC Wealth Management, said in a phone interview. “If you look at the entire tech group, the valuations had come down a lot, especially in communication services. And those stocks took a hit late last year.”
The S&P 500 also carved out a 1.4% weekly gain even as banking stocks dragged the index to a 1.1% drop Friday. The financial sector was the worst performing with First Republic Bank, the latest US lender to signal stress, plunging over 70% on the week despite the larger banks throwing a lifeline to the regional lender Thursday. Credit Suisse Group AG added to the sector’s woes after Reuters reported that at least four big banks, including Deutsche Bank AG, were curbing trading with the troubled Swiss lender. A gauge of regional banks fell 15% over the past five days.
“When an extreme event happens and impacts the financial system, it usually takes markets more than just a few days to work through it,” Bogdanova said. “We can’t rule out more knock on effects.”
The policy-sensitive two-year swung more than 20 basis points for the seventh straight session as traders recalibrated rate-hike wagers. Yields fell across the curve Friday after a softer-than-expected reading on inflation expectations. An index of the dollar weakened.
Banks including JPMorgan Chase & Co. and Citigroup Inc. banded together in a show of support for First Republic on Thursday. While the rescue attempt initially boosted sentiment, billionaire investor Bill Ackman was among those questioning whether it would be enough to halt the crisis. Meanwhile, US banks borrowed a combined $164.8 billion from two Federal Reserve backstop facilities in the most recent week, a sign of escalated funding strains in the aftermath of Silicon Valley Bank’s failure.
“The Fed’s rate hiking cycle was already feeling restrictive, so now that we have rising risks of more bank bailouts and even tighter credit standards, the growth outlook for the economy is rather bleak,” Ed Moya, a senior market analyst at Oanda, wrote. “Next week will be huge as markets are unsure if the Fed will continue to tighten or given this week’s banking turmoil decide to hold.”
Markets were also digesting a 50 basis points rate hike by the European Central Bank. By making it clear that stress points in the banking industry — as well as economic data — will guide future rate decisions, ECB Chief Christine Lagarde paved the way for bond-market gyrations to remain elevated for the remainder of the year as traders try to figure out when the hiking cycle will end.
Market pricing for the Fed’s March 21-22 meeting has lurched between another quarter-point hike, and the first rate pause in more than a year. US overnight indexed swaps are now pricing for close to a coin-flip probability of a quarter-percentage point Fed rate hike next week.
Wall Street remains divided on which way the central bank should move. Anastasia Amoroso, chief investment strategist at iCapital, told Bloomberg Television that the confidence signaled by a 25 basis point hike from the Fed would not go “that far.”
“They have to pause,” said Amoroso. “The biggest signal of confidence would be to say, we are attuned to the issue. We want to take the time to make sure we have the right approach in place before we resume that rate hiking cycle. To me that would be the best approach.”
BlackRock Investment Institute does not expect cracks in the financial sector to deter central banks from raising rates further to contain inflation. It expects both the ECB and the Fed to “go as far as possible to distinguish their inflation fighting campaigns from measures to deal with bank troubles and safeguard the financial system,” a team of BlackRock analysts wrote in a note.
Jack Manley, global market strategist at JPMorgan Investment Management expects some kind of Fed reprieve next week and that could bring markets a “sigh of relief.”
“Financial stability is more important than inflation. And the Fed’s going to have an awfully hard time transmitting monetary policy through a banking system that it’s broken,” Manley told Bloomberg Television.
Bitcoin reached its highest level since June amid a broad rally in cryptocurrencies. Other tokens such as Ether, Solana and Polkadot surged as well. Oil had its worst week so far this year. Gold rose.
These are the main market moves:
Stocks
- The S&P 500 fell 1.1% as of 4 p.m. New York time
- The Nasdaq 100 fell 0.5%
- The Dow Jones Industrial Average fell 1.2%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.5% to $1.0662
- The British pound rose 0.5% to $1.2170
- The Japanese yen rose 1.3% to 131.99 per dollar
Cryptocurrencies
- Bitcoin rose 8.6% to $26,885.52
- Ether rose 5.3% to $1,747.32
Bonds
- The yield on 10-year Treasuries declined 15 basis points to 3.42%
- Germany’s 10-year yield declined 18 basis points to 2.11%
- Britain’s 10-year yield declined 14 basis points to 3.28%
Commodities
- West Texas Intermediate crude fell 3.1% to $66.23 a barrel
- Gold futures rose 3% to $1,998.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Robert Brand and Felice Maranz.
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