Stocks rally to cap weekly gains as Amazon sinks, First Republic collapses

• 2 days ago

  Myles Udland

  Another busy week of earnings ahead

  Via Yahoo Finance's Brent Sanchez, a look at what to expect on the earnings docket in the week ahead.

  
• 2 days ago

  Myles Udland

  Strong tech earnings were no illusion

  The Friday afternoon update from John Butters and the folks over at FactSet offers some numbers around the feeling that earnings season is not only proving out to be better than feared but may even call off the earnings recession so confidently predicted just weeks ago.

  From FactSet's report, with our emphasis:

  At the mid-point of the Q1 2023 earnings season, S&P 500 companies are recording their best performance relative to analyst expectations since Q4 2021. Both the number of companies reporting positive EPS surprises and the magnitude of these earnings surprises are above their 10-year averages. The index is reporting higher earnings for the first quarter today relative to the end of last week and relative to the end of the quarter. However, the index is still reporting a year-over-year decline in earnings for the second straight quarter.

  Overall, 53% of the companies in the S&P 500 have reported actual results for Q1 2023 to date. Of these companies, 79% have reported actual EPS above estimates, which is above the 5-year average of 77% and above the 10-year average of 73%. In aggregate, companies are reporting earnings that are 6.9% above estimates, which is below the 5-year average of 8.4% but above the 10-year average of 6.4%.

  As a result, the index is reporting higher earnings for the first quarter today relative to the end of last week and relative to the end of the quarter. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the first quarter is -3.7% today, compared to an earnings decline of -6.3% last week and an earnings decline of -6.7% at the end of the first quarter (March 31).

• 2 days ago

  Myles Udland

  First Republic's long weekend ahead

  Stocks finished Friday's session with gains, but struggling lender First Republic (FRC) looked like a bank on the verge of collapse.

  Shares of the bank fell 43% on Friday, with a morning report from CNBC's David Faber that the bank would likely enter FDIC receivership this weekend appearing to seal the firm's fate in the eyes of investors.

  First Republic's expected failure comes, of course, the same day the Fed and the FDIC issued their own reports about the collapse of Silicon Valley Bank and Signature Bank last month. Along with Silvergate, a failure of First Republic in the next few days would mark four US banks going under since the beginning of March.

• 2 days ago

  Myles Udland

  Signature Bank's signature failure

  The Federal Reserve and FDIC's reports on the failures of Silicon Valley Bank and Signature Bank offer investors and the public — and lawmakers! — a detailed look at what doomed these institutions.

  Concentration is a word that comes up time and again.

  The Fed's report notes, "While low interest rates and more-frequent client funding events affected all financial institutions and their clients, [Silicon Valley Bank] saw an outsized impact because of its concentration in venture capital and start-up clients." A large base of corporate clients taking similar sources of capital results in the huge influx of uninsured deposits SVB took in between 2020-2022. Money that eventually made its way out the door.

  The FDIC's report, for its part, got a bit more into the nitty gritty of just how concentrated the Signature's client base became. According to the FDIC, 60 clients at Signature bank held in excess of $250 million in their accounts. These clients represented about 40% of total deposits. And the source of most of these deposits was the crypto sector.

  "Digital asset-related deposits alone represented 27 percent of total deposits [at Signature Bank] at year-end 2021," the report said. "Four separate depositors, each comprised greater than 2 percent of total assets, and together held 14 percent of total assets. Three of these depositors were digital asset-related clients."

  Before these bank failures, few investors who didn't specialize in financials thought much about the source of funds for a bank. It's just cash, after all. But as these reports come out and get a closer look in the coming days and weeks — and no doubt additional reports will follow as well — it is eye-opening to see how extreme some relationships became.

  And perhaps unsurprising how much concentration risk was taken on by the normally staid banking sector that catered most directly to the risk-seeking worlds of venture capital and cryptocurrencies.

  
• 2 days ago

  Myles Udland

  Consumer sentiment steady in April

  The University of Michigan released its final look at consumer sentiment in April on Friday, with the consumer sentiment index registering a reading of 63.5, in-line with expectations. This marched an improvement from Mach's 62.0 reading but was down from 65.2 in the same month last year.

  "Despite the increasingly negative news on business conditions heard by consumers, their short and long-run economic outlook improved modestly from last month," said Joanne Hsu, director of the survey of consumers.

  Gurleen Chadha, US economist at Oxford Economics, wrote in a note to clients Friday this modest improvement "doesn’t warrant any change to the forecast for near-term consumer spending."

  Adding: "Consumers often say one thing and do another."

• 2 days ago

  Myles Udland

  Stocks higher near 12:30 p.m. ET

  After opening lower, then trading higher, then reversing lower, stocks were again in green figures near lunchtime in New York.

  Around 12:30 p.m. ET, S&P 500 (^GSPC) was up 0.6%, the Dow Jones Industrial Average (^DJI) was higher by 0.6%, and the technology-heavy Nasdaq Composite (^IXIC) rose 0.3%.

• 2 days ago

  Myles Udland

  Fed report on SVB blames bank execs, Fed officials, regulations for failure

  The Federal Reserve on Friday published its highly-anticipated report breaking down what it saw as the causes of Silicon Valley Bank's failure last month. The central bank placed blame for the debacle on its own staff, bank execs, and regulatory changes in recent years.

  "The report shows that Silicon Valley Bank was a highly vulnerable firm in ways that both its board of directors and senior management did not fully appreciate," the Fed wrote.

  "These vulnerabilities—foundational and widespread managerial weaknesses, a highly concentrated business model, and a reliance on uninsured deposits—left Silicon Valley Bank acutely exposed to the specific combination of rising interest rates and slowing activity in the technology sector that materialized in 2022 and early 2023."

  The report also recommended additional regulatory rules should be put in place, including tougher capital and liquidity standards for mid-sized banks, tougher executive compensation standards as well as changes to how the Fed tests for a lender's management of interest-rate risk, Yahoo Finance's David Hollerith and Ben Werschkul reported.

  "SVB’s failure had two stages," the report said.

  "First, its core risk-management capacity failed to keep up with rapid asset growth, which led to steady deterioration of its financial condition in 2022 and into March 2023. This reflected a long build-up of weakness, as [Silicon Valley Bank] could not effectively manage through a changing economic and financial environment in 2022 and 2023.

  "Second, SVBFG failed to develop sufficient contingent funding capacity. This contributed to a disorderly failure when SVBFG tried to manage the acute situation after its March 8, 2023, balance sheet restructuring announcement."

• 2 days ago

  Myles Udland

  First Republic likely headed for receivership, CNBC reports

  CNBC's David Faber reported Friday that troubled lender First Republic Bank (FRC) is likely headed into FDIC receivership, a move that would make it the fourth US bank to fail since the beginning of March.

  Reports all week have swirled over whether regulators would manage to find a rescue plan for the bank. Ahead of the weekend, it appears those efforts have failed.

  Shares of First Republic, which fell more than 40% on Monday after a disappointing quarter, were down as much as 30% on Friday morning.

• 2 days ago

  Myles Udland

  Investment bank Lazard the latest firm to cut staff

  Large US banks have mostly reported first quarter results, with investors focused on how these firms fared during March's bank crisis that saw two banks collapse in a matter of days.

  But before Silicon Valley Bank drew national headlines, the big story in the banking world was what was happening at investment banks. In January, Goldman Sachs (GS) laid off 6% of its workforce, and results from Morgan Stanley (MS) earlier this month showed activity for traditional investment banks remained muted in the first quarter.

  Smaller banking rival Lazard (LAZ) ​ reported results Friday morning that not only confirmed the paucity of deals happening on the Street right now, but also announced plans to cut 10% of its staff.

  "While Lazard's business continued to perform solidly, we cannot ignore the environment in which we are operating," CEO Ken Jacobs said on a call with analysts. "The recent news flow is unlikely to improve confidence among decision-makers near term or make them any less reticent about committing capital. As such, the slowdown in M&A is likely to extend beyond the first quarter."

  Jacobs added that for the firm's asset management business volatility will continue "so long as there is a lack of conviction about the evolution of the macroeconomic environment."

  Lazard shares fell 3% early Friday. In the first quarter, revenues at the firm fell 25% while assets under management were, on average, down 12% during the quarter.

• 2 days ago

  Myles Udland

  Stocks turn positive

  After opening lower on Friday, all three major indexes were adding to gains about an hour into the trading session.

  The S&P 500 (^GSPC) was up as much as 0.5%, the Dow Jones Industrial Average (^DJI) was higher by 0.4%, and the technology-heavy Nasdaq Composite (^IXIC) rose 0.4%.