New Worries About Banks

By Lawrence C. Strauss |  Thursday, March 9 Lots of Pain, No Gain. Stocks gave back early gains Thursday and ended the day's trading in a sharp decline amid worries about a recession and banks, among other factors. The Dow Jones Industrial Average fell 1.7%. The S&P 500 was down 1.9%, with all 11 of its sectors in the red. The tech-laden Nasdaq Composite Index lost 2.1%. The Russell 2000, a small-cap stock barometer, was down 2.8%. Banking-related stocks didn't help market sentiment, with shares of JPMorgan Chase and Wells Fargo sliding 5% and 6%, respectively. Charles Schwab was down nearly 13%. Overall, the financial stocks in the S&P 500 fell by 4.1% on the day. SVB Financial Group, the parent of Silicon Valley Bank, reported a big loss, triggering selling among large U.S. bank stocks. My colleague Ben Levisohn filed a dispatch about the selloff, noting that SVB Financial "said Wednesday night that it had sold securities from its portfolio for a $1.8 billion loss, while also announcing plans to raise capital via an offering of common and preferred stock." SVB Financial's stock plunged 60% on Thursday. Other bank shares sold off as well. U.S. Bancorp, a large regional bank based in Minneapolis, was down 7% Thursday. Shares of Truist Financial, based in Charlotte, fell by about 5%. The stock market didn't react well to economic data released Thursday, even though it showed the strong job market could be starting to cool off  --  possibly suggesting that inflation is headed in the right direction. Initial jobless claims increased to 211,000 in the week ended March 4, according to the Labor Department. That was above FactSet's consensus forecast of 196,000. Continuing claims for regular benefits, which are reported with an extra week's lag, rose to 1,718,000, up by 69,000, according to High Frequency Economics.  Rubeela Farooqi, the firm's chief U.S. economist, observed in a note that she expects the demand for workers to ease as the effects of the Fed rate hikes take hold. "But for now, layoffs remain low and job growth is strong, given [that] companies appear to be hoarding workers, having struggled with labor shortages and staffing issues that are persisting," she wrote. Barron's Jacob Sonenshine and Jack Denton wrote that "for now, the stock market fears a Fed-induced recession." Treasury yields moved lower, especially at the front end of the curve. The two-year Treasury, which had been at levels not seen since 2007, settled at 4.9%, down 16.4 basis points from where it closed on Wednesday. It was the largest one-day yield decline since Jan. 6. The two-year Treasury reflects the bond market's view on the terminal rate, or where short-term rates will settle once the Fed finishes its tightening program. The 10-year Treasury, which is more closely tied to the economy and inflation, settled at 3.92%, down about five basis points. Treasury yields have backed up recently amid concerns that it will take longer than recently anticipated to get inflation under control, bringing higher interest rates along the way. DJIA: -1.66% to 32,254.86 S&P 500: -1.85% to  3,918.32 Nasdaq: -2.05% to 11,338.35 The Hot Stock: General Electric+5.3% The Biggest Loser: SVB Financial Group -60.4%   Best Sector: Utilities -0.8% Worst Sector: Financial -4.1%

 

Recession, What Recession? Companies continue to buy back their stock at an aggressive clip, Jacob Sonenshine reports today. A 1% excise tax on buybacks has taken effect, and President Biden wants to increase that to 4%. But that prospect, however unlikely, isn't deterring companies from repurchasing their shares -- in big numbers. Chevron, for example, announced in January that its board had approved a new buyback program that authorized up to $75 billion in repurchases. Meanwhile, Jacob observes that there's no sign of the share repurchase trend letting up: Total spending on share buybacks by S&P 500 companies is on pace to hit $900 billion this year, according to LPL Financial, just a touch lower than it was in 2022, when companies spent $922 billion. The number is far more than the $500 billion spent on repurchases during pandemic-stricken 2020. There’s a good reason for companies to continue their buyback binge. Biden’s proposal, for one, is still just a proposal, and the stock market’s decline last year has left many companies with much cheaper stocks than they had at the end of 2021. Reducing share count increases earnings per share, which can support a stock’s price. And for many chief financial officers, buybacks remain a relatively safe way to return cash to shareholders without the restrictiveness that comes from paying a fixed dividend. Dividend payouts have been solid, despite a few recent high-profile cuts such as one announced by Intel last month. Janus Henderson Investors is forecasting a 2.3% increase in global dividend payments this year in dollars, down from an 8.4% jump in 2022. More details about global dividends are available in a story I wrote this week.  Read more about buybacks here.