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Weekly Market Commentary
Fallout from First Republic Bank
Posted on May 1, 2023
Market Commentary by Larson COO, Mitchell Wood
| The Major Markets closed mostly higher last week as four of the five indices managed to end April on a positive note. Last week was dominated by the headlines coming out of earnings season. On Monday after trading hours, First Republic Bank reported a massive decline in deposits in the first quarter as the troubled bank had its first earnings call following the fallout of the Silicon Valley Bank collapse. First Republic reported that deposits were down over $100 Billion dollars year-over-year, representing a 35 percent decline in overall assets. This sent the stock reeling Tuesday and set the tone in the market as it became painfully clear to analysts that the initial regional bank concerns had not been fully resolved. Jumping ahead, JPMorgan eventually purchased the distressed bank following a brief takeover by the FDIC over this past weekend. |
This represents the third failure of a major U.S. bank in two months’ time, and the second-largest bank failure of all time.
| After a lackluster Monday session, the S&P 500 logged the largest loss of the week on Tuesday. That afternoon, once the closing bell had rung, Amazon, Microsoft, and Google all posted their earnings results. Guidance was generally optimistic across these companies, but slowing cloud growth was a theme for Microsoft and Amazon. Nevertheless, the overall market benefited from the optimism coming out of the technology sector and the mood on Wall Street began to shift. On an economic front, first quarter GDP came in weaker than expected on Thursday. The headline reading of 1.1 percent was well below the estimates of 2.0 percent and the fourth quarter reading of 2.6 percent. Additionally, Pending Home Sales fell by over 5 percent in March, significantly missing the expectation of a slight gain of 0.5 percent. This was a case of bad news being good news as this pointing to further indication that the Fed’s efforts to rein in inflation was impacting the markets and tempering growth. This sentiment sent stocks higher with the S&P 500 closing nearly two percentage points higher, taking the index back to unchanged on the week. Friday’s final session logged the gains that closed out the week and the month of April. Looking ahead, this week holds the May FOMC Meeting. The CME Group anticipates that the Fed Funds Rate will still climb higher at least once more, with the market pricing in the greatest likelihood of the Fed Funds rate at the 5.00 – 5.25 percent range. https://ir.firstrepublic.com/static-files/013f57fb-b980-4353-bbb3-0e7a3b27f20a https://www.npr.org/2023/05/01/1172868295/first-republic-bank-failure-fdic-jpmorgan-chase |
| The S&P 500® Index is a capitalization index of 500 stock-designed to measure performance of the broad domestic economy through changes in the aggregate market value of stock representing all major industries. https://us.spindices.com/indices/equity/sp-500 The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities. https://us.spindices.com/indices/equity/dow-jones-industrial-average The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes over 2,500 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes. https://indexes.nasdaqomx.com/Index/Overview/COMP The MSCI World Index, which is part of The Modern Index Strategy, is a broad global equity benchmark that represents large and mid-cap equity performance across 23 developed markets countries. It covers approximately 85% of the free float-adjusted market capitalization in each country and MSCI World benchmark does not offer exposure to emerging markets. The MSCI Emerging Markets (EM) Index is designed to represent the performance of large- and mid-cap securities in 24 Emerging Markets countries of the Americas, Europe, the Middle East, Africa and Asia. As of December 2017, it had more than 830 constituents and covered approximately 85% of the free float-adjusted market capitalization in each country. https://www.msci.com/ The S&P GSCI Crude Oil index provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market. https://us.spindices.com/indices Companies in the S&P 500 Sector Indices are classified based on the Global Industry Classification Standard (GICS®). https://us.spindices.com/indices |
