Stock Market Rally Whipsaw Off Highs As Moody's Issues This Bank Warning

Dow Jones futures rose slightly in the hours after hours, as did S&P 500 and Nasdaq futures.

Stock market rallies rebounded strongly on Thursday morning. However, major indexes saw their intraday gains drop and the Russell 2000 fell to a new 2023 low. Moody's Investor Service, however, warned of broader bank contagion as well as economic collapse. Stocks rose late in the session after Treasury Secretary Janet Yellen promised "additional measures" to bank deposits if necessary. The Federal Reserve rate hike and Yellen's comments led to major indexes falling sharply on Wednesday.

The big losers were bank stocks on Thursday. First Republic (FRC), which fell to a new record low, and PacWest Bancorp(PACW) to an all time closing low were both big losers Thursday. Superregionals like KeyCorp, KEY and Comerica (CMA), however, were also sold down. Even giants such as Bank of America (BAC), hit multi-year lows.

Meritage Homes stock (MTH) and KBH stock showed buy signals, despite strong earnings from KB Home (KBH), and general strong activity among builders. Microsoft (MSFT), traded above a buy level. Yum China (YUMC), broke out. VanEck Semiconductor ETF(SMH) cleared a buypoint, offering a way for you to play the chip sector using NVDA stock as well as many hot semis.

MTH stock (NVDA) and Nvidia(NVDA) are both on the IBD Leaderboard. MSFT stock is IBD Long-Term Leaders. KBH and Meritage stock are both on the IBD 50 along with many other homebuilders. Meritage Homes is Thursday’s IBD Stock Of The Day.

Investors should be cautious. Although a rally attempt has been made, it is still a correction in the market. The rally attempt is still volatile and divided, with the bank sector being a major negative.

Moody's: Wider Bank 'Turmoil' A Risk

Regulators are increasingly at risk of "not being able to curb the current turmoil without long-lasting and potentially serious repercussions within the banking sector." Moody's Investor Service warned Thursday that this could cause more "financial, and economic damage" than we had anticipated. The credit-ratings agency expects policymakers will "broadly succeed".

The major indexes and bank stocks fell to afternoon lows after Treasury Secretary Yellen stated in prepared remarks before a House committee that the government was "prepared to take additional steps if necessary."

Yellen essentially reiterated Wednesday's comments to a Senate panel. She said that officials aren’t looking to extend a blanket guarantee to all deposits at banks. This comment was instrumental in Wednesday's market correction. However, Yellen previously stated that any bank in trouble will be eligible for additional deposit guarantees.

Barron's Advisor reported Thursday that the FDIC will announce the fate SVB Financial's Silicon Valley Bank this weekend.

Dow Jones Futures Today

Dow Jones futures increased 0.1% vs. fair values. S&P 500 futures rose 0.1% Futures for Nasdaq 100 edged up.

Do not forget that Dow futures stock exchange session is subject to overnight action.

Stock Market Rally

Despite the fact that intraday gains were small, major indexes closed higher after turning mixed in the afternoon.

In Thursday's stock exchange trading, the Dow Jones Industrial Average rose 0.2%. The S&P 500 index climbed 0.3% with Zions Bancorp, Comerica, and KEY stock being the worst performers. The Nasdaq composite rose 1%. The Russell 2000 small-cap index declined 0.8%

U.S. crude oil prices dropped 1.3% to $69.95 per barrel. Copper futures rose 7.5% in six sessions, rising 1.9%

The 10-year Treasury yield fell 9 basis points to 3.411%. The 2-year yield fell 17 basis points to 3.811%.

Markets see 66% chance that there will be a pause in May despite Fed signals Wednesday that they will raise the central bank's rate one more time. This is up from Friday's 50.1% and Tuesday's 39.7%. Investors anticipate that Fed rate cuts will begin this summer.

ETFs

The Innovator IBD 50 (FFTY), a growth ETF, rose 1.2% while the Innovator IBD breakout opportunities ETF (BOUT), climbed 0.7%. The iShares Expanded Technology-Software Sector ETF, (IGV), rose 1.5% with Microsoft stock a key part. VanEck Vectors Semiconductor ETF soared 2.7% NVDA stock is a significant SMH holding.

Reflecting more-speculative stories stocks, ARK Innovation ETF(ARKK) fell 1.5% while ARK Genomics ETF(ARKG) gained 0.7%. Coinbase (COIN), Square-parent Block(SQ), which are both top-10 Ark Invest holdings fell more than 10% Thursday.

Global Jets ETF(JETS) fell 1%. SPDR S&P Homebuilders ETF(XHB) closed below break-even. The Energy Select SPDR ETF, (XLE), fell 1.4%. The Health Care Select Sector SPDR Fund, XLV, edged down 0.2%.

Financial Select SPDR ETF (XLF), which lost 0.7%, reached a low of five months. BAC stock is a noteworthy XLF holding. SPDR S&P Regional Banking ETF lost 2.8%, the lowest level since late 2020. KRE holds the following: PACW, KEY, CMA stock, First Republic and PACW.

Market Rally Analysis

The market rally attempt failed to produce big intraday gains for the second consecutive session. The major indexes fell sharply on Wednesday. They closed higher on Thursday, but not the action you would expect to see in a market rally.

Megacap techs like Nvidia, Microsoft stock and Meta Platforms (META) kept the Nasdaq up solidly. It was an inside day that saw the Nasdaq lose more than half of its intraday 2.5% bounce.

S&P 500 rebounded from its 200 day line but encountered resistance at its 50-day. Invesco S&P 500 Equal weight ETF (RSP) fell 0.3%, marking an intraday low of five months.

The Dow Jones attempted to regain the 200-day line but lost its gains. The Russell 2000 opened strongly, but then fell as bank stocks declined again.

The chip sector remains strong. Nvidia stock, Aehr Test Systems AEHR and a few other stocks are moving higher but are generally extended. Several other stocks, including Applied Materials (AMAT), have near buy zones, but they aren't outperforming the SMH-ETF.

The outlook for homebuilders is positive. KBH stock and Meritage rallied towards official buy points but lost intraday gains.

YUMC stock rose from a flat base. Yum China earnings will boom in 2023 if Covid restrictions are lifted.

But the breadth of your ideas is limited.

If the banking crisis continues to worsen, a sustained market rally will be almost impossible. SVB Financial was an exception in many ways. It was therefore a bad sign that other California-based banks like PacWest and FRC stock were under pressure. It will be worse if superregionals like KeyCorp and CMA stock buckle. BAC stock has dropped to its lowest level since 2020. JPMorgan Chase (IBD), one of the most well-capitalized banks in the world, is at its lowest level since 2020.

MarketWatch was informed Thursday by Sheila Bair, ex-FDIC chief, that unrealized bond loss is a risk facing all banks and not just regional ones.

What to do now?

Market rally attempts are divided, volatile, and news-driven. It is not an uptrend.

You can invest in leaders. While some leaders, like Nvidia or On Holding (ONON), have been successful, others have failed. Stockholders who bought stocks on strength over the last two days are likely to have suffered modest losses.

To maximize your chances of making a profit, you should consider taking a minimum amount of profits as quickly as possible.

It's okay to keep cash in full or in part until there is a sustained rally in the market with bank headlines in background.

Investors should be engaged and ready for action, regardless of the outcome. This means having up-to-date watchlists and exit strategies.

To stay on top of market direction, leading stocks, and other sectors, read The Big Picture each day.