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Week Ahead: Banking Crisis, Inflation Reports, and Big Pharma Acquisitions
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Last week ended on a hectic note. On Thursday afternoon a bank run Silicon Valley Bank ensued, and by Friday afternoon markets were in panic mode. All major stock indexes went negative on the year and investors anticipated some government intervention over the weekend. Fortunately, they got it. The Federal Reserve along with support from the US Treasury, opened a new lending program called the “Bank Term Funding Program,” in an effort to backstop the depositors at SIVB.
The potential effects of this event are quite significant and include concerns about further bank runs, poorly capitalized banks, and shifting interest rate policy. As of Monday morning, another institution, First Republic Bank seems to be dealing with similar issues as Silicon Valley Bank. Shares were down -66% through morning trading Monday.
As for Fed interest rate policy, the expectations of future rates hikes are shifting incredibly fast. Just last week, markets began to price in the high likelihood of the Fed resuming 50 basis point hikes, a very hawkish development. But by Friday, traders reversed that expectation, and were again pricing in 25 basis point hikes. And as of Monday morning, policy expectations have grown even more dovish, pricing in the possibility of no hike in the next FOMC meeting, and a rapid cut in interest rates by year end.
If all that wasn’t enough, we are also getting critical data on inflation and unemployment this week.
Image Source: CME Group
Monday
In other news, Pfizer (PFE - Free Report) decided to put some of that vaccine money to work, and agreed to acquire Seagen for $43 billion. After backing off from aggressive deal-making in the last few years, it looks like big-pharma thinks there are some good deals in the market. French drugmaker Sanofi (SNY - Free Report) also agreed to purchase Provention Bio PRVB for $2.9 billion.
Already down -21% YTD, PFE investors are hopeful this acquisition can renew an aging product line.
Image Source: Zacks Investment Research
Tuesday
On Tuesday morning we are getting a slew of inflation data. CPI, and Core CPI numbers are crucial considerations for the Fed and its interest rate policy. Analysts currently expect YoY CPI to cool from 6.4% last month to 6.1% and Core CPI to go from 5.6% last month to 5.5%.
Wednesday
Wednesday will see retail sales numbers, producer price index and core PPI, empire state manufacturing, business inventories and the homebuilder survey.
Retail sales are expecting big drops to come in this report, which should have a significant impact on the leading retail stocks such as Target (TGT - Free Report) , Walmart (WMT - Free Report) , Costco (COST - Free Report) and others. Last month saw retail sales grow by 3%, a strong reading, but analysts are projecting that number to flip negative this month to a -0.4% decline.
Image Source: Zacks Investment Research
The strength of the U.S. consumer is going to be another important factor for the Fed when making its policy decisions. Another strong reading from retail sales and the market should expect more hawkishness from policymakers.
Thursday
Thursday features Philadelphia Fed manufacturing, building permits, housing starts and jobless claims data. Initial jobless claims are yet another important indicator for Fed policy, while housing starts should give a clue to the near-term future of real estate prices.
Even in the face of rising interest rates, homebuilders have been a bright spot for the stock market. Lennar Corp (LEN - Free Report) , D.R. Horton (DHI - Free Report) , and Toll Brothers Inc (TOL - Free Report) along with the homebuilders ETF (XHB - Free Report) have all outperformed the broad market YTD.
Image Source: Zacks Investment Research
Friday
Friday morning will round up the week with data for industrial production, U.S. leading economic index, and consumer sentiment.
Bottom Line
This is a huge week. The way the market reacts to all of the coming economic data as well as the developing issues in the banking sector will say a lot about the health of this market.
Next Wednesday, Mach 15 is the FOMC meeting where the Fed will announce interest rate policy, and possibly give clues about its view on the state of the market.
It feels like things are on a precipice. It is time to remain flexible, open-minded, and risk averse. This week and next week will be vital to the direction of the market for the rest of the year.
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Week Ahead: Banking Crisis, Inflation Reports, and Big Pharma Acquisitions
Last week ended on a hectic note. On Thursday afternoon a bank run Silicon Valley Bank ensued, and by Friday afternoon markets were in panic mode. All major stock indexes went negative on the year and investors anticipated some government intervention over the weekend. Fortunately, they got it. The Federal Reserve along with support from the US Treasury, opened a new lending program called the “Bank Term Funding Program,” in an effort to backstop the depositors at SIVB.
The potential effects of this event are quite significant and include concerns about further bank runs, poorly capitalized banks, and shifting interest rate policy. As of Monday morning, another institution, First Republic Bank seems to be dealing with similar issues as Silicon Valley Bank. Shares were down -66% through morning trading Monday.
As for Fed interest rate policy, the expectations of future rates hikes are shifting incredibly fast. Just last week, markets began to price in the high likelihood of the Fed resuming 50 basis point hikes, a very hawkish development. But by Friday, traders reversed that expectation, and were again pricing in 25 basis point hikes. And as of Monday morning, policy expectations have grown even more dovish, pricing in the possibility of no hike in the next FOMC meeting, and a rapid cut in interest rates by year end.
If all that wasn’t enough, we are also getting critical data on inflation and unemployment this week.
Image Source: CME Group
Monday
In other news, Pfizer (PFE - Free Report) decided to put some of that vaccine money to work, and agreed to acquire Seagen for $43 billion. After backing off from aggressive deal-making in the last few years, it looks like big-pharma thinks there are some good deals in the market. French drugmaker Sanofi (SNY - Free Report) also agreed to purchase Provention Bio PRVB for $2.9 billion.
Already down -21% YTD, PFE investors are hopeful this acquisition can renew an aging product line.
Image Source: Zacks Investment Research
Tuesday
On Tuesday morning we are getting a slew of inflation data. CPI, and Core CPI numbers are crucial considerations for the Fed and its interest rate policy. Analysts currently expect YoY CPI to cool from 6.4% last month to 6.1% and Core CPI to go from 5.6% last month to 5.5%.
Wednesday
Wednesday will see retail sales numbers, producer price index and core PPI, empire state manufacturing, business inventories and the homebuilder survey.
Retail sales are expecting big drops to come in this report, which should have a significant impact on the leading retail stocks such as Target (TGT - Free Report) , Walmart (WMT - Free Report) , Costco (COST - Free Report) and others. Last month saw retail sales grow by 3%, a strong reading, but analysts are projecting that number to flip negative this month to a -0.4% decline.
Image Source: Zacks Investment Research
The strength of the U.S. consumer is going to be another important factor for the Fed when making its policy decisions. Another strong reading from retail sales and the market should expect more hawkishness from policymakers.
Thursday
Thursday features Philadelphia Fed manufacturing, building permits, housing starts and jobless claims data. Initial jobless claims are yet another important indicator for Fed policy, while housing starts should give a clue to the near-term future of real estate prices.
Even in the face of rising interest rates, homebuilders have been a bright spot for the stock market. Lennar Corp (LEN - Free Report) , D.R. Horton (DHI - Free Report) , and Toll Brothers Inc (TOL - Free Report) along with the homebuilders ETF (XHB - Free Report) have all outperformed the broad market YTD.
Image Source: Zacks Investment Research
Friday
Friday morning will round up the week with data for industrial production, U.S. leading economic index, and consumer sentiment.
Bottom Line
This is a huge week. The way the market reacts to all of the coming economic data as well as the developing issues in the banking sector will say a lot about the health of this market.
Next Wednesday, Mach 15 is the FOMC meeting where the Fed will announce interest rate policy, and possibly give clues about its view on the state of the market.
It feels like things are on a precipice. It is time to remain flexible, open-minded, and risk averse. This week and next week will be vital to the direction of the market for the rest of the year.