Stock market news today: Futures lower as First Republic bailout weighs on banks

Stock futures were lower on Friday morning as investors digested a day of news on Thursday that ended with a syndicate of 11 major US banks coming together to deposit $30 billion in First Republic (FRC), to stabilize the banking system.

As of 8:30 a.m. ET, Dow futures are down about 0.7%, S&P 500 futures are down 0.6%, and Nasdaq futures are down 0.3%.

Shares rebounded sharply on Thursday after news emerged later in the day that major banks led by JPMorgan (JPM) and Bank of America (BAC) would be providing capital to First Republic in what amounted to an industry bailout of the troubled bank.

The companies finally announced their deal to support First Republic about half an hour before the market closed.

Speaking to Yahoo Finance Live on Thursday, longtime banking analyst Dick Bove said that after these moves, the short-term banking crisis is over.

Shares of First Republic, which was halted multiple times on Thursday for volatility, fell about 13% in premarket trading on Friday. The broader banking sector was also lower early Friday.

First Republic Bank headquarters is seen on March 16, 2023 in San Francisco, California, United States. (Photo by Tayfun Coskun/Anadolu Agency via Getty Images)

Investors also followed crude oil prices, with WTI crude trading near $68.80 a barrel, a roughly 15-month low as oil prices have come under severe pressure over the past week.

The Treasury market will also remain in focus as the 10-year yield is near 3.58% early Friday, just over a week after topping 4%.

In a note to clients Thursday, analysts at Bespoke Investment Group highlighted that some of the recent volatility in the Treasury market — particularly among shorter-dated Treasuries, which tend to be more sensitive to Fed expectations — is likely due to “forced (that is, non-discretionary) buying and selling, and the prices agreed to by price-insensitive buyers or sellers do not necessarily reflect all available information.”

“Another example is the massive inflow of cash into money market funds this week, reported by ICI: total fund assets rose 2.5%, or $121 billion, and money funds are being forced to deploy that money, fueling the short-term Interest buying pressure increased,” the firm wrote. “Declining exchange yields and very high volatility are consistent with the idea that cash flows are forcing buying in certain markets.”

In a note to clients on Friday, Thomas Mathews, senior markets economist at Capital Economics, echoed this view, noting that the front end of the Treasury curve now implies that the Fed’s policy rate will be about 2 percentage points below what the Investors had expected just a week ago.

“In our view, there’s a good chance that investors are now underestimating how much central bankers will hike rates over the next few months,” Mathews wrote. “As such, we suspect the rally may be reversing in short-dated bonds.”

The Fed is due to announce its next monetary policy decision on Wednesday, March 22nd, with investors pricing in around an 80% chance that the central bank will hike rates by another 0.25%. according to the CME Group.

Friday’s corporate earnings chart is a quiet one, with the economic calendar bringing US investors the top highlight for March’s first look at consumer sentiment from the University of Michigan.

Friday also marked quadruple witching in US markets, with single stock options and futures and index options and futures contracts all expiring at today’s close.

There will also be a reshuffle in some sectors of the S&P 500, with S&P reclassifying 14 stocks in the index into new sectors as of today’s close.

Notable names moving include Target (TGT), Dollar General (DG) and Dollar Tree (DLTR), which will move from the Consumer Discretionary (XLY) sector to Consumer Staples (XLP). Other notable companies shifting sectors include Visa (V), Mastercard (MA) and PayPal (PYPL), which will move from technology (XLK) to finance (XLF).

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