Stock Market Shows Its Magic: An Exciting Finish

KEY

TAKEAWAYS

  • The stock market has wrapped the week on a positive note
  • Consumer Staples stocks may start to show strength in the near future
  • More macro data is on deck for next week

What a turnaround! Today’s PCE data, which was in line with expectations, initially sent the stock market higher. Then, it experienced a significant selloff, but things changed in the last 30 minutes. Equities pushed higher into the close, revealing that investor optimism isn’t dead. The S&P 500 ($SPX) and Dow Jones Industrial Average ($INDU) closed higher, and the Nasdaq Composite ($COMPQ) was flat.

Today’s stock market behavior shows how it can turn on a dime, and there’s no way to anticipate what it’ll do. The PCE came in as expected, which, realistically, shouldn’t have altered investor sentiment. The expectation of possibly getting one rate cut in 2024 is still in play, so it made sense to see the selloff for most of the trading day. But that big push higher shortly before the close makes it difficult for an investor to be pessimistic.

A Closer Look at the Trading Action

For most of the day, Tech stocks sold off significantly. The weekly chart of the Nasdaq Composite (see below) shows that, if it hadn’t been for the rise at the end of the trading day/week/month, the index could have closed below its first support level (blue dashed line). Instead, it was able to close well above the support level.

Follow the live chart.

Could that mean the index will try hitting a new high next week? It’s something to anticipate, but always be prepared for the market to go either direction.

CHART 1. WEEKLY CHART OF NASDAQ COMPOSITE. The index looked like it would close below its first level, but buying pressure dominated, and the index closed for the week on a relatively optimistic note.Chart source: StockCharts.com. For educational purposes.

Not much has changed. The Nasdaq is trading above its 21-day exponential moving average (EMA), which is trending upward, as is the 50-day simple moving average (SMA).

Follow the live chart.

Like the weekly chart, the daily chart of the Nasdaq Composite also shows some clear lines in the sand. Today’s range was significant and, while it looked like there could have been some short-term technical support breaks, the index ended the week without much to worry about.

CHART 2. DAILY CHART OF NASDAQ COMPOSITE. There are clear lines of sand in the daily chart of the Nasdaq, and there is enough buying interest to keep the index above the initial support levels.Chart source: StockCharts.com. For educational purposes.

Follow the live chart.

You can blame the tech stock selloff on semiconductors. To understand this better, it makes sense to bring up a chart of NVIDIA (NVDA), since the price action of the stock tends to correlate with the price action in the Nasdaq and S&P 500.

The daily chart of NVDA below shows a clear resistance level. From March to May, NVDA’s stock price hit resistance at around $965 and a few times before it gapped higher.

CHART 3. DAILY CHART OF NVDA. Could the stock fall to its previous resistance level?Chart source: StockCharts.com. For educational purposes.

NVDA’s recent earnings saw the stock price surge higher, but the buying seems to have exhausted. The question is whether NVDA’s stock price will retrace back to the $965 level. For a while, it looked like that could happen. We’ll have to wait until next week to see which way investor sentiment leans.

A look at the StockCharts MarketCarpet gives a good visual of today’s market action. You can clearly see that NVDA and Amazon, Inc. (AMZN) experienced the largest losses, but, overall, there was a lot of green. The dark green squares represent the largest percentage gainers, and one that stands out in the Tech sector is Salesforce.com, Inc. (CRM). After falling almost 20% on Thursday after a dismal earnings report, the stock gained 7.5% on Friday.

CHART 4. THE BIG PICTURE. The StockCharts MarketCarpet gives a good overview of how the market performed.Chart source: StockCharts.com.

Follow the live chart.

Interestingly, it wasn’t so green in the Tech and Communications Services sectors. But the other sectors were doing relatively well. Two stocks that should be on your radar are Gap Stores (GPS) and Deckers Outdoor Corp. (DECK).

CHART 5. RETAIL STOCKS SURGE. Gap, Inc. (GPS) and Deckers Outdoors (DECK) are seeing significant strength. These two stocks should be on your radar.Chart source: StockChartsACP. For educational purposes.

GPS rose on strong Q1 earnings and strong guidance. DECK’s shares have been rising on the popularity of their Hoka shoes. The rise in these stocks indicates the retail sector continues to be strong.

The Takeaway

Overall, May ended on a positive note. Maybe the “Sell in May and go away” strategy will have to wait. Next week, there will be some earnings, but the focus will be on macro data. Will the data be enough to move the needle? The jobs number will probably have the largest impact if it comes in hot.

End-of-Week Wrap-Up

  • S&P 500 closes up 0.80% at 5,277.51, Dow Jones Industrial Average up 1.50% at 38,686.32; Nasdaq Composite down 0.01% at 16,735.02
  • $VIX down 10.71% at 12.92
  • Best performing sector for the week: Energy
  • Worst performing sector for the week: Technology
  • Top 5 Large Cap SCTR stocks: MicroStrategy Inc. (MSTR); Vistra Energy Corp. (VST); NVIDIA (NVDA); Super Micro Computer, Inc. (SMCI); Robinhood Markets (HOOD)

On the Radar Next Week

  • May Manufacturing PMI
  • May Services PMI
  • April JOLTS Job Openings
  • May Non-Farm Payrolls
  • Earnings from CrowdStrike Holdings (CRWD), Hewlett Packard (HP), and Lululemon Athletica (LULU)

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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Stock rally, rate-cut forecasts face test from Powell testimony and jobs report

A four-month-long U.S. stock market rally, partly fueled by investors’ expectations for interest rate cuts in 2024 by the Federal Reserve, faces a test posed by pair of big events in the week ahead.

The first is Federal Reserve Chairman Jerome Powell’s semiannual testimony to Congress on Wednesday and Thursday, followed by Friday’s official jobs report for February.

Of the two, the nonfarm payrolls data has the potential to move markets more, given what it could signal about the risk that inflation may keep running hot if job gains come in above the 190,000 consensus expectation, according to analysts and investors.

“Inflation has bottomed out, but is still above the Fed’s objective and it seems like more labor-market weakness is going to be needed,” said John Luke Tyner, a portfolio manager at Alabama-based Aptus Capital Advisors, which manages $5.5 billion in assets. “The headlines we’ve been seeing on technology-related layoffs are missing the mark because there’s a resurgence of employment and wage growth in Middle America.”

January’s data proves the point. The month of February began with the release of January nonfarm payrolls, which showed 353,000 jobs created and a sharp 0.6% rise in average hourly earnings for all employees, despite the highest interest rates in more than two decades.

Then came a round of inflation data. Consumer- and producer-price readings were both above expectations for January, followed by last Thursday’s release of the Fed’s preferred inflation measure, known as the PCE, which showed the monthly pace of underlying price gains rising at the fastest pace in almost a year. Meanwhile, personal income grew at a monthly rate of 1% in January.

Fed-funds futures traders have since pared back their expectations for as many as six or seven quarter-percentage point rate cuts by December, and moved closer in line with the three reductions that the Fed signaled would likely be appropriate. However, this has still been enough to hand the Dow Jones Industrial Average
DJIA
and S&P 500
SPX
their best start to a year since 2019, and fueled a four-month rally in all three major indexes. For the week, the S&P 500 rose 1% and the Nasdaq Composite gained 1.7%, but the Dow Jones slipped 0.1%, based on FactSet data.

Broadly speaking, Powell is expected to stick to his script by emphasizing the need for greater confidence that inflation is falling toward the Fed’s 2% objective, before policymakers can cut the fed-funds rate target from its current range of 5.25% to 5.5%, analysts said. He’s seen as loath to say anything just yet that could move markets or rate expectations.

“Powell needs to avoid doing what he did in November and December, which was to juice the market with a very bullish message suggesting that policymakers might be done with hiking rates and that the next moves would be rate cuts,” Tyner said via phone. “The Fed needs to remain unified about the need to be patient, with no rush to cut rates, and about being data dependent, with the current data pointing toward not cutting until later this year.”

Read: No Fed rate cuts in 2024, Wall Street economist warns investors

Aptus Capital’s strategies rely on the use of options overlays to improve results, and the firm is “well-positioned” to capture both upside and downside moves in the market because of a “disciplined approach on hedges in both directions,” the portfolio manager said.

Others see some possibility that Powell’s testimony to the House Financial Services Committee and Senate Banking Committee produces one of two non-base-case results: He could either push back on expectations around the timing or extent of Fed rate cuts this year, or, on the flip side, hint at the need for maintenance rate cuts because of prospects for softer inflation and economic readings going forward.

The rates market is the mechanism by which financial markets would likely react one way or another to Powell’s testimony and Friday’s nonfarm payrolls report — specifically with trading in fed-funds futures and Secured Overnight Financing Rate futures. Any reaction in the futures market would simultaneously impact longer-term Treasurys and risk assets, according to Mike Sanders, head of fixed income at Wisconsin-based Madison Investments, which manages $23 billion in assets.

Fed officials are not likely to have enough confidence that they’ve won the battle against inflation by June, raising the question of whether markets are overestimating policymakers’ ability to start cutting rates by that month, Sanders said via phone.

“Fed officials are more or less committed to cutting rates when appropriate, but are concerned that if they cut too soon they’ll have sticky inflation,” he said.

“The services side continues to be higher than the Fed wants, with much of the disinflation coming from the goods side,” Sanders said. Inflation dynamics are “still not in balance from the Fed’s perspective, and the services side has to be concerning to policymakers, especially in the face of the personal-income growth we’ve seen. It’s going to be status quo until the Fed knows whether the higher inflation prints seen in January were a one-off or if this continues.’’

Analysts said they are particularly worried about supercore inflation, a measure of core services that excludes housing, which is still running at levels which suggest that the services side of the U.S. economy is firing on all cylinders.

No major U.S. data is scheduled for release on Monday. Tuesday brings January factory orders and ISM service sector activity figures for February.

On Wednesday, data releases include ADP’s private-sector employment report, January readings on wholesale inventories and job openings, and the Fed’s Beige Book report. San Francisco Fed President Mary Daly is also set to speak that day.

Thursday’s data batch includes weekly initial jobless benefit claims, a revision on fourth-quarter productivity, the U.S. trade balance, and consumer-credit figures. Cleveland Fed President Loretta Mester is also scheduled to make an appearance. Friday brings an appearance by New York Fed President John Williams and final consumer-sentiment data for February.

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February was a great month for Wall Street. These were our 5 best-performing stocks

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 23, 2024. 

Brendan McDermid | Reuters

February was a strong month for stocks and the Club’s portfolio.

The advance came as investors parsed through fourth-quarter earnings results and fresh economic data, searching for clues about when the Federal Reserve will finally cut interest rates. The Nasdaq Composite led the march higher in February, gaining 6.1% and finishing the month at its first record close since November 2021. Meanwhile, the Dow Jones Industrial Average and S&P 500 both hit a series of all-time highs throughout the month, climbing 2.2% and 5.2%, respectively.

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Stock-market rally faces Fed, tech earnings and jobs data in make-or-break week

Stock-market investors may take their cues from a series of important events in the week ahead, including the Federal Reserve’s monetary-policy meeting, a closely-watched December employment report and an onslaught of earnings from megacap technology names, which all promise insight into the state of the economy and interest-rate outlook. 

The benchmark S&P 500 index
SPX
Thursday closed at a record high for five straight trading days, the longest streak of its kind since November 2021. The index finished slightly lower on Friday, but clinched weekly gains of 1.1%, while the Nasdaq Composite
COMP
advanced 1% and the blue-chip Dow Jones Industrial Average
DJIA
gained 0.7% for the week, according to Dow Jones Market Data.

“What we’re seeing is the market participants are still playing catch-up from 2023, putting money on the sidelines to work,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management.

“Wall Street is still back at it trying to eke out gains as quickly as possible, so it’s very short-term oriented until we get big market-moving events,” he said, adding that one of the events could well be “a disappointing Fed speech.”

Fed’s Powell has good reasons to push back on rate cuts

Expectations that the Fed would begin easing monetary policy as early as March after its fastest tightening cycle in four decades have helped fuel a rally in U.S. stock- and bond-markets. Investors now mostly expect five or six quarter-point rate cuts by December, bringing the fed-funds rate down to around 4-4.25% from the current range of 5.25-5.5%, according to the CME FedWatch Tool. 

See: Economic growth underlined by fourth-quarter GDP reinforces Fed’s cautious approach to rate cuts

While no interest-rate change is expected for the central bank’s first policy meeting this year, some market analysts think comments from Fed Chair Jerome Powell during his news conference on Wednesday are likely to shift the market’s expectations and push back against forecasts of a March cut. 

Thierry Wizman, global FX and interest rates strategist at Macquarie, said a stock-market rally, “too-dovish” signals from the Fed’s December meeting, a still-resilient labor market and escalating Middle East conflicts may indicate that Powell has to keep the “[monetary] tightening bias” next week. 

The rally in the stock market could “conceivably backfire” by virtue of a loosening of financial conditions, while the labor market has not weakened to the extent that the Fed officials would have hoped, Wizman told MarketWatch in a phone interview on Friday.

Further complicating things, fears that inflation could spike again in light of the conflict in the Middle East and Red Sea could reinforce Fed’s cautious approach to rate cuts, he said. 

See: Oil traders aren’t panicking over Middle East shipping attacks. Here’s why.

Meanwhile, a shift to “neutral bias” doesn’t automatically mean that the Fed will cut the policy rate soon since the Fed still needs to go to “easing bias” before actually trimming rates, Wizman said. “I think the market gets too dovish and does not realize the Fed has very, very good reasons to push this [the first rate cut] out to June.” 

Markets are ‘laser-focused’ on January employment report

Labor-market data could also sway U.S. financial markets in the week ahead, serving as the “big swing factor” for the economy, said Patrick Ryan, head of multi-asset solutions at Madison Investments. 

Investors have been looking for clear signs of a slowing labor market that could prompt the central bank to start cutting rates as early as March. That bet may be tested as soon as Friday with the release of nonfarm payroll data for January.

Economists polled by The Wall Street Journal estimate that U.S. employers added 180,000 jobs in January, down from a surprisingly strong 216,000 in the final month of 2023. The unemployment rate is expected to tick up to 3.8% from 3.7% in the prior month, keeping it near a half century low. Wage gains are forecast to cool a bit to 0.3% in January after a solid 0.4% gain in December. 

“That’s going to have everyone laser-focused,” Ryan told MarketWatch via phone on Thursday. “Anything that shows you real weakness in the labor market is going to question if the equity market is willing to trade at 20 plus times (earnings) this year.” The S&P 500 is trading at 20.2 times earnings as of Friday afternoon, according to FactSet data. 

Six of ‘Magnificent 7’ may continue to drive S&P 500 earnings higher

This coming week is also packed with earnings from some of the big tech names that have fueled the stock-market rally since last year. 

Five of the so-called Magnificent 7 technology companies will provide earnings starting from next Tuesday when Alphabet Inc.
GOOG,
+0.10%

and Microsoft Corp.
MSFT,
-0.23%

take center stage, followed by results from Apple Inc.
AAPL,
-0.90%
,
Amazon.com
AMZN,
+0.87%

and Meta Platforms
META,
+0.24%

on Thursday. 

Of the remaining two members of the “Magnificent 7,” Tesla Inc.
TSLA,
+0.34%

has reported earlier this week with its results “massively disappointing” Wall Street, while Nvidia Corp.’s
NVDA,
-0.95%

results will be coming out at the end of February.

See: Here’s why Nvidia, Microsoft and other ‘Magnificent Seven’ stocks are back on top in 2024

A number of the companies in the “Magnificent 7” have seen their stock prices hit record-high levels in recent weeks, which could help to drive the value of the S&P 500 higher, said John Butters, senior earnings analyst at FactSet Research. He also said these stocks are projected to drive earnings higher for the benchmark index in the fourth quarter of 2023.

In One Chart: Tech leads stock market’s January rally by wide margin. Watch out for February.

In aggregate, Nvidia, Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft are expected to report year-over-year earnings growth of 53.7% for the fourth quarter of last year, while excluding these six companies, the blended earnings decline for the remaining 494 companies in the S&P 500 would be 10.5%, Butters wrote in a Friday client note.

“Overall, the blended earnings decline for the entire S&P 500 for Q4 2023 is 1.4%,” he said. 

Check out! On Watch by MarketWatch, a weekly podcast about the financial news we’re all watching — and how that’s affecting the economy and your wallet. MarketWatch’s Jeremy Owens trains his eye on what’s driving markets and offers insights that will help you make more informed money decisions. Subscribe on Spotify and Apple.  

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Fed holds rates steady, upgrades assessment of economic growth

The Federal Reserve on Wednesday again held benchmark interest rates steady amid a backdrop of a growing economy and labor market and inflation that is still well above the central bank’s target.

In a widely expected move, the Fed’s rate-setting group unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.

The decision included an upgrade to the committee’s general assessment of the economy. Stocks rallied on the news, with the Dow Jones Industrial Average gaining 212 points on the session.

“The process of getting inflation sustainably down to 2% has a long way to go,” Fed Chair Jerome Powell said in remarks at a news conference. He stressed that the central bank hasn’t made any decisions yet for its December meeting, saying that “The committee will always do what it thinks is appropriate at the time.”

Powell added that the FOMC is not considering or even discussing rate reductions at this time.

He also said the risks around the Fed doing too much or too little to fight inflation have become more balanced.

“This signals that while there is a potential risk for the Fed to do more, the bar has become higher for rate hikes, and we are clearly seeing this play out with two consecutive meetings of no policy action from the Fed,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Economy has ‘moderated’

The post-meeting statement had indicated that “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” The statement also noted that employment gains “have moderated since earlier in the year but remain strong.”

Gross domestic product expanded at a 4.9% annualized rate in the third quarter, stronger than even elevated expectations. Nonfarm payrolls growth totaled 336,000 in September, well ahead of the Wall Street outlook.

There were few other changes to the statement, other than a notation that both financial and credit conditions had tightened. The addition of “financial” to the phrase followed a surge in Treasury yields that has caused concern on Wall Street. The statement continued to note that the committee is still “determining the extent of additional policy firming” that it may need to achieve its goals. “The Committee will continue to assess additional information and its implications for monetary policy,” the statement said.

Wednesday’s decision to stay put comes with inflation slowing from its rapid pace of 2022 and a labor market that has been surprisingly resilient despite all the interest rate hikes. The increases have been targeted at easing economic growth and bringing a supply and demand mismatch in the labor market back into balance. There were 1.5 available jobs for every available worker in September, according to Labor Department data released earlier Wednesday.

Core inflation is currently running at 3.7% on an annual basis, according to the latest personal consumption expenditures price index reading, which the Fed favors as an indicator for prices.

While that has decreased steadily this year, it is well above the Fed’s 2% annual target.

The post-meeting statement indicated that the Fed sees the economy holding strong despite the rate hikes, a position in itself that could prompt policymakers into a prolonged tightening stance.

In recent days, the “higher-for-longer” mantra has become a central theme for where the Fed is headed. While multiple officials have said they think rates can stay where they are as the Fed assesses the impact of the previous increases, virtually none have said they are considering cuts anytime soon. Market pricing indicates the first cut could come around June 2024, according to CME Group data.

Surging bond yields

The restrictive stance has been a factor in the surging bond yields. Treasury yields have risen to levels not seen since 2007, the earliest days of the financial crisis, as markets parse out what is ahead. Yields and prices move in opposite direction, so a rise in the former reflects waning investor appetite for Treasurys, generally considered the largest and most liquid market in the world.

The surge in yields is seen as a byproduct of multiple factors, including stronger-than-expected economic growth, stubbornly high inflation, a hawkish Fed and an elevated “term premium” for bond investors demanding higher yields in return for the risk of holding longer-duration fixed income.

There also are worries over Treasury issuance as the government looks to finance its massive debt load. The department this week said it will be auctioning off $776 billion of debt in the fourth quarter, starting with $112 billion across three auctions next week.

During a recent appearance in New York, Powell said he thinks the economy may have to slow further to bring down inflation. Most forecasters expect economic growth to tail off ahead.

A Treasury Department forecast released earlier this week indicated that the pace of growth likely will tumble to 0.7% in the fourth quarter and just 1% for the full year in 2024. Projections the Fed released in September put expected GDP growth at 1.5% in 2024.

In the wake of the Fed’s comments, the Atlanta Fed’s GDPNow growth tracker slashed expectations for fourth-quarter GDP almost in half to 1.2% from 2.3%. The gauge takes in data on a real-time basis and adjusts its estimates with the latest information.

Whitney Watson, co-CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, said it’s likely the Fed will keep its policy unchanged into next year.

“There are risks in both directions,” Watson said. “The rise in inflation expectations, owing to higher gas prices, combined with strong economic activity, preserves the prospect of another rate hike. Conversely, a more pronounced economic slowdown caused by the growing impact of higher interest rates might accelerate the timeline for transitioning to rate cuts.”

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Big bank earnings in spotlight following historic failures: ‘Every income statement line item is in flux’.

JPMorgan Chase & Co.
JPM,
-0.11%
,
Citigroup Inc.
C,
+0.20%

and Wells Fargo & Co.
WFC,
+2.74%

— along with PNC Financial Services Group Inc.
PNC,
+0.37%

and BlackRock Inc.
BLK,
+0.05%

— report earnings Friday as Wall Street’s fixation on a recession continues to run deep. And following the implosion of Silicon Valley Bank
SIVBQ,
-12.21%
,
Signature Bank
SBNY,
+3.97%

and Silvergate Bank
SI,
-2.72%
,
along with efforts to seal up cracks in First Republic Bank
FRC,
+4.39%

and Credit Suisse Group AG
CS,
+1.27%
,
Wall Street is likely to review quarterly numbers from the industry with a magnifying glass.

“Every income statement line item is in flux and the degree of confidence in our forecast is lower as the probability of a sharper slowdown increases,” Morgan Stanley analyst Betsy Graseck said in a note on Wednesday.

For more: Banks on the line for deposit flows and margin pressure as they reel from banking crisis

She said that the collapse of Silicon Valley Bank and Signature Bank last month would trigger an “accelerated bid” for customers’ money, potentially weighing on net interest margins, a profitability gauge measuring what banks make on interest from loans and what they pay out to depositors. Tighter lending standards, she said, would drive up net charge-offs — a measure of debt unlikely to be repaid — as borrowers run into more trouble obtaining or refinancing loans.

Phil Orlando, chief investment strategist at Federated Hermes, said in an interview that tighter lending standards could constrain lending volume. He also said that banks were likely to set aside more money to cover loans that go bad, as managers grow more conservative and try to gauge what exposure they have to different types of borrowers.

“To a significant degree, they have to say, what percentage of our companies are tech companies? What percentage are financial companies? Do we think that this starts to dribble into the auto industry?” he said. “Every bank is going to be different in terms of what their portfolio of business looks like.”

He also said that last month’s bank failures could spur more customers to open up multiple accounts at different banks, following bigger concerns about what would happen to the money in a bank account that exceeded the $250,000 limit covered by the FDIC. But as the recent banking disturbances trigger Lehman flashbacks, he said that the recent banking failures were the result of poor management and insufficient risk controls specific to those financial firms.

“COVID was something that affected everyone, universally, not just the banking companies but the entire economy, the entire stock market,” he said. “You go back to the global financial crisis in the ’07-’09 period, that’s something that really affected all of the financial service companies. I don’t think that’s what we’re dealing with here.”

Also read: Banking sector’s growing political might could blunt reform in wake of SVB failure, experts warn

JPMorgan
JPM,
-0.11%

Chief Executive Jamie Dimon has said that Trump-era banking deregulation didn’t cause those bank failures. But in his annual letter to shareholders last week, he also said that the current turmoil in the bank system is not over. However, he also said that the collapse or near-collapse of Silicon Valley Bank and its peers “are nothing like what occurred during the 2008 global financial crisis.”

“Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight,” Dimon said. “Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios and the amount of SVB’s uninsured deposits were always known — both to regulators and the marketplace.”

“The unknown risk was that SVB’s over 35,000 corporate clients – and activity within them – were controlled by a small number of venture capital companies and moved their deposits in lockstep,” Dimon continued. “It is unlikely that any recent change in regulatory requirements would have made a difference in what followed.”

The Federal Reserve’s decision to raise interest rates, along with a broader pullback in digital demand following the first two years of the pandemic, stanched the flow of tech-industry funding into Silicon Valley bank and caused the value of its bond investments to fall.

Don’t miss: An earnings recession seems inevitable, but it might not last long

But the impact of those higher interest rates — an effort to slow the economy and, by extension, bring inflation down — will be felt elsewhere. First-quarter earnings are expected to decline 6.8% for S&P 500 index components overall, according to FactSet. That would be the first decline since the second quarter of 2020, when the pandemic had just begun to send the economy into a tailspin.

“In a word, earnings for the first quarter are going to be poor,” Orlando said.

This week in earnings

For the week ahead, 11 S&P 500
SPX,
+0.36%

components, and two from the Dow Jones Industrial Average
DJIA,
+0.01%
,
will report first-quarter results. Outside of the banks, health-insurance giant UnitedHealth Group
UNH,
+0.70%

reports during the week. Online fashion marketplace Rent the Runway Inc.
RENT,
+3.75%

will also report.

The call to put on your calendar

Delta Air Lines Inc.: Delta
DAL,
+0.69%

reports first-quarter results on Thursday, amid bigger questions about when, if ever, higher prices — including for airfares — might turn off travelers. The carrier last month stuck with its outlook for big first-quarter sales gains when compared with prepandemic levels. “If anyone’s looking for weakness, don’t look at Delta”, Chief Executive Ed Bastian said at a conference last month.

But rival United Airlines Holdings Inc.
UAL,
+1.50%

has told investors to prepare for a surprise loss, even though it also reported a 15% jump in international bookings in March. And after Southwest Airlines Co.’s
LUV,
+0.03%

flight-cancellation mayhem last year brought more attention to technology issues and airline understaffing, concerns have grown over whether the industry has enough air-traffic controllers, prompting a reduction in some flights.

For more: Air-traffic controller shortages could result in fewer flights this summer

But limitations within those airlines’ flight networks to handle consumer demand can push fares higher. And Morgan Stanley said that strong balance sheets, passengers’ willingness to still pay up — albeit in a concentrated industry with a handful of options — and “muscle memory” from being gutted by the pandemic, could make airlines “defensive safe-havens,” to some degree, for investors.

“It is hard to argue against the airlines soaring above the macro storm underneath them (at least in the short term),” the analysts wrote in a research note last week.

The numbers to watch

Grocery-store margins: Albertsons Cos.
ACI,
+0.53%
.
— the grocery chain whose merger deal with Kroger Inc.
KR,
+0.96%

has raised concerns about food prices and accessibility — reports results on Tuesday. Higher food prices have helped fatten grocery stores’ profits, even as consumers struggle to keep up. But Costco Wholesale Corp.
COST,
-2.24%
,
in reporting March same-store sales results, noted that “year-over-year inflation for food and sundries and fresh foods were both down from February.” The results from Albertsons could offer clues on whether shoppers might be getting a break from steep price increases.

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