Stocks recovered slightly this week with markets experiencing higher volatility from investor concerns over the health of some financial institutions Silvergate, Signature and Silicon Valley Bank.
First Republic Bank (FRC) was the latest victim as its shares crashed with the company exploring strategic options that include a sale as it faced solvency issues. First Republic shares had recovered somewhat on Thursday after a group of 11 banks agreed to deposit $30 billion in the company to help liquidity difficulties but lost an additional 30% on Friday as concerns rose that the $30 billion would not be enough to meet customer withdrawals and reassure investors that it can withstand the turbulence in the banking industry.
The banking system remains the focus among traders as Credit Suisse (CS) also faced issues of its own and saw its shares tank briefly with the Swiss bank’s largest shareholder commenting that he will not provide the firm with any more capital while the cost of default insurance for its short-term debt has reached high enough levels for investor concerns. Unsurprisingly, Credit Suisse shares rallied with an update that the Swiss National Bank offered a lifeline to the tune of 50 million francs to the financial institution.
Meanwhile, outside of the banking system, airlines and car services were trending this week after guidance updates from airlines and California upheld legislation that allowed drivers to continue as independent contractors which sent shares of Uber (UBER), Lyft (LYFT), and DoorDash (DASH) higher.
New economic data was pretty dense this week with inflation updates from the Consumer Price Index (CPI) and Producer Price Index (PPI) being a key focus with traders questioning the next move from the Federal Reserve given that the bank problems may give the central bank a reason to pause rate hikes. With mixed inflation data and the banking solvency issues being somewhat contained at the moment, it remains up in the air exactly what the central bank will decide to do in its meeting next week.
Consumer prices rose 0.4% in March as expected which was slightly lower than the 0.5% jump in February but remains far above a 2% annual targeted rate. Core prices (excluding food and energy) increased 0.5% though, which was slightly more than the projected 0.4% gain. Producer prices meanwhile actually fell 0.1% as analysts had expected a 0.3% increase in prices. Finally, core producer prices stayed flat with analysts having predicted a 0.4% gain following the previous month’s 0.1% rise.
Outside of new price data, initial unemployment claims fell from 212,000 to 192,000 claims with analysts having expected a slight increase in weekly claims. New housing data from housing starts and building permits in February also crushed expectations while retail sales actually fell 0.4% with projections having been for a 0.2% gain.
Overall, the data was very mixed with consumer prices rising at a still high rate but producer prices actually falling. Unemployment claims fell and housing data improved while retail sales numbers dropped off in February. With the high volatility in markets from the bank runs, it seems unlikely that the Federal Reserve would decide to increase the size of rate hikes but a drop in rates also seems unlikely at this time. More than likely a rate hold or small 25 basis point hike is coming after the central bank had previously signaled a larger rate hike may be on the table.
All in all, the S&P 500 gained 1.43%, the Dow Jones Industrial Average dropped 0.15%, and the NASDAQ rose 4.41%.