Stocks Mixed Monday as Contagion Risks Dominate Headlines; Consumer, Producer Inflation Readings on Deck

Stocks finished a volatile Monday mixed as banks plunged across the board over fears of contagion and investors braced for key inflation readings due this week.

Contagion

As contagion risks are front and center in investors' minds, banks - particularly regional banks - plunged.

Last week, Silvergate Capital and Silicon Valley Bank both went under. Over the weekend, Signature Bank (SBNY) added its name to that list, becoming the third largest bank failure in US history.

Monday’s scare comes from First Republic Bank (FRC), which plunged over 60% and was halted as investors feared the next domino. In an attempt to quell fears, First Republic’s Executive Chairman Jim Herbert spoke with Jim Cramer regarding the company’s liquidity.

Herbert said that with the help of JPMorgan Chase (JPM) and the Fed, it has been able to meet all withdrawal demands and that it isn’t seeing a massive outflow of depositors, though he declined to share how much had been withdrawn.

Obviously, banks aren’t the only companies affected by these failures and Monday’s trading session brought that to light as corporations shared their holdings at these failing banks.

While this list isn’t all-inclusive, and the Fed’s moves should ensure companies get their cash back, investor confidence was shaken and shares initially fell due to disclosed holdings at the failing banks.

Roku (ROKU), Roblox (RBLX), and Etsy (ETSY) were among the larger names affected, with Etsy being the only stock closing lower Monday.

Bitcoin surged amidst bank failures, rising 15% in the last 24 hours to $24,300 as of writing. While the “new age bank” rallied, it can’t be without acknowledging that the banks that have failed thus far all made massive bets on crypto, or at least companies in the crypto industry.

A proposed tailwind for the crypto space at the tail-end of its 2021 rally was that increased acceptance of the technology would accelerate acceptance and adoption as it legitimizes digital currencies. If the companies funding and pushing for that outcome are now failing, is it really a bull case?

Consumer & Producer Prices

Investors’ ability to juggle multiple headlines will be tested as not only are banks failing by the day, inflation is persisting and quickly setting the stages for an unwelcomed pivot back to higher rate hikes.

Fed Chair Jerome Powell underscored that the Federal Reserve is nimble and reacting to economic data as it comes in. Powell said last week that rates will likely need to go higher, for longer, and that the size of rate hikes could increase if economic data continues to disappoint, although some analysts are now saying further hikes could be complicated by issues at the banks.

This week’s Consumer and Producer Price Index reports on Tuesday and Wednesday, respectively, are highly important as next week’s rate hike could be the straw that broke the camel’s back.

Headline and core CPI are expected to rise 0.4% month/month in February. This would follow advances of 0.5% and 0.4%, respectively, last month.

Meanwhile, headline PPI is expected at a 0.3% monthly rise and core prices are projected to jump 0.4%. These would follow sharper rises of 0.7% and 0.5%, respectively.

Retail Sales

Lastly, February’s retail sales report, due Wednesday morning, is expected to show a sharp slowdown from January to February.

Retail sales are projected to rise 0.2% following January’s 3% rise. Excluding autos, sales are expected to decline by 0.1% following a 2.3% jump.

January’s report underscored resilient spending in the face of inflationary pressures as every sales category posted a monthly gain. Given the Fed’s desire to slow the economy, lower-than-expected reading could illicit a stronger reaction by investors.