As Dow Jones futures fall, Deutsche Bank becomes the latest banking pain point

Dow Jones futures fell on Friday morning, along with S&P 500 futures and Nasdaq futures, as Deutsche Bank shares sold off on rising default risks.


Bank stocks were already down on Thursday as a market rally attempt fizzled and reversed course. The Russell 2000 hit a fresh low of 2023 as Moody’s Investors Service warned of a broader banking contagion and economic downturn. Stocks rose of late as Treasury Secretary Janet Yellen pledged “additional measures” for bank depositors if necessary.

First Republic (FRC) was a record low and skidded Bawest Bancorp (PACW) is the lowest ever. But super regions like keycorp (Important) and Comerica (CMA) even sold with some giants like Bank of America (BAC) multi-year innings.

Meritage Homes (MTH) and KBH shares flashed buy signals amid strong KP Home (KBH) revenue. Microsoft (MSFT) traded back above the buy point. Yum China (Y.M.C) exploded. VanK Semiconductor ETF (SMH) removed the buy point, providing a way to play the chip sector with NVDA stock and many other hot shirts.

MTH stock and Nvidia (NVDA) are available IBD Leaderboard. MSFT stock is among IBD’s long-term leaders. Eligibility and KBH shares are available IBD 50, with many home builders. Meritage Homes is Thursday’s IBD Stock of the Day.

But investors should be cautious. Yes, a rally attempt is underway, but it is still a market correction. The rally effort is fragmented and volatile, with the banking sector a major negative.

Deutsche Bank is the latest concern

Bank fears shifted again on Friday from US regional banks to European firms.

DB stock fell 11% early Friday as the cost of insuring against default rose. Deutsche Bank shares fell 6% on Thursday to a five-month low. The German giant has long been a struggling bank. Other European bank stocks also retreated.

In the U.S., shares of regional banks and First Republic and PAC fell modestly ahead of the open.

Moody’s: Wider banking ‘turbulence’ a risk

There is a growing risk that “the current turmoil cannot be contained without long-term and potentially severe consequences within and beyond the banking sector.” Moody’s Investors Service warned Thursday that it could trigger greater “financial and economic damage” than we expected. However, the credit-rating agency still expects policymakers to be “broadly successful.”

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Bank stocks and major indexes edged lower in the afternoon after Treasury Secretary Yellen said in prepared remarks to a House committee that “the government would be prepared to take additional measures if warranted.”

Yellen reiterated the comments to a Senate committee on Wednesday when officials said they did not want to extend a “blanket” guarantee to all deposits at all banks, except for that tax. That sentiment helped fuel Wednesday’s bearish market reversal. However, Yellen previously hinted that any struggling bank would trigger more deposit guarantees.

The FDIC aims to announce the fate of SVB Financial’s Silicon Valley bank by the end of the week, Barron’s counsel said Thursday.

Dow Jones Futures Today

Dow Jones futures fell 1% against fair value. S&P 500 futures were down 0.9% and Nasdaq 100 futures were down 0.5%. Futures suggest the S&P 500 will open its 200-day line on Friday.

The 10-year Treasury yield fell 11 basis points to 3.3%. The 2-year yield declined 22 basis points to 3.59%.

Crude oil futures fell more than 3%.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.

Join IBD experts as they examine stocks that could be in for a stock market rally on IBD Live

Stock market rally

The stock market’s rally attempt saw big intraday gains, though major indices closed higher after a mixed afternoon.

The Dow Jones Industrial Average rose 0.2% in stock market trading Thursday. The S&P 500 index rose 0.3% Zions Bancorp (Zion), Comerica and KEY were the three worst performers. The Nasdaq composite rose 1%. The small-cap Russell 2000 fell 0.8%.

US crude oil prices fell 1.3% to $69.95 a barrel. Copper futures rose 1.9%, ending a six-session winning streak of 7.5%.

The 10-year Treasury yield fell 9 basis points to 3.41%. The two-year yield fell 17 basis points to 3.81%.

Markets see a 66% chance of a pause in May, up from 50.1% on Wednesday and 39.7% on Tuesday, even if the Fed signaled on Wednesday that the central bank will hike one more time. Investors expect the central bank to start cutting interest rates this summer.


Among growth ETFs, the innovator IBD 50 ETF (FFTY) rose 1.2%, while the Innovator IBD Breakout Opportunities ETF (BotUp 0.7%. iShares Expanded Technology-Software Sector ETF (IGV) shares of Microsoft rose 1.5% as a major component. VanEck Vectors Semiconductor ETF (SMH) up 2.7%. NVDA stock is a major SMH holding.

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Reflecting the more speculative story stocks, the ARK Innovation ETF (ARKK) fell 1.5% and the ARK Genomics ETF (ARKG) gained 0.7%. Coinbase (currency) and square-parent prevent (SQ), the top-10 Arc Invest holdings, both fell more than 10% on Thursday.

SPDR S&P Metals & Mining ETF (XME) 0.3% and Global X US Infrastructure Development Pvt.sidewalkdecreased by 0.3%. US Global Jets ETF (JETS) down 1%. SPDR S&P Homebuilders ETF (XHB) closed below the break-even point. Energy Select SPDR ETF (XLEdecreased by 1.4%. Health Care Select Sector SPDR Fund (XLVdecreased by 0.2%.

Fund Selection SPDR ETF (45) shed 0.7%, hitting a five-month low. BAC stock is a significant XLF holding. The SPDR S&P Regional Banking ETF gave up 2.8%, hitting its worst levels since late 2020. First Republic, PACW, KEY and CMA shares are all KRE holdings.

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Market rally analysis

For the second consecutive session, the market’s rally attempt fueled large intraday gains. On Wednesday, major indices fell sharply. On Thursday, they closed higher, but that’s not the kind of action you want to see in a market rally.

The Nasdaq was even stronger thanks to Microsoft’s stock, Nvidia and Megacap technologies. Meta platforms (Meta) but it was an intraday, giving up more than half of its 2.5% intraday bounce.

The S&P 500 bounced off its 200-day line, but hit resistance near its 50-day. Invesco S&P 500 Equal Weight ETF (RSP), not dominated by those megacap technologies, fell 0.35%, marking a five-month gap.

The Dow Jones attempted to retrace the 200-day line, but pared gains. The Russell 2000 opened strongly but turned lower as bank stocks worsened again.

The chip industry is still going strong. nvidia stock, AHER test systems (ahr) and some others are more powerful, but usually extended. Many such Utility items (Big), are near buy areas, but haven’t really outperformed the SMH ETF.

Homebuilders are strong. KBH shares and Meritage rallied towards official buy points, but pared intraday gains.

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YUMC stock broke out of a flat base. Yum China revenue to rise in 2023 as Covid restrictions ease

But the width is narrow.

If the banking crisis worsens, a sustained market rally is almost impossible. SVB Financial was in many ways an outlier, so it’s a bad sign that other California-based banks like FRC Stock and Bawest are coming under pressure. Too bad if super regionals like CMA stock and KeyCorp start to curve. BAC stock is in its worst position since 2020. too JP Morgan Chase (IBD), among the best capitalized banks, testing the recent 2023 low and its 200-day line.

Former FDIC Chairman Sheila Baer said Market monitoring On Thursday, unrealized bond losses were a “risk facing all banks”, not just regional players.

Time the market with IBD’s ETF Market Strategy

What to do now

A market rally effort is fragmented, volatile and news-driven. This is not a confirmed boom.

Investors can try to play some leaders. But some, Nvidia and In holding (onion) have worked, and many others have been disappointed. Anyone who bought the stock in the last couple of days could be sitting on at least moderate losses.

So keep your exposure light and cut your losses quickly. With winners, take at least some of the profits quickly to ensure you end up with gains.

As long as there is a steady market rally with banking headlines in the background there is nothing wrong with holding all or all of it in cash.

Either way, investors should be willing to engage and act. That means being prepared with up-to-date watch lists and having your exit strategies in place.

Read the big picture every day to stay in tune with market direction and leading stocks and sectors.

Follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.

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