Stock Market News for May 15, 2023

·4 min read

U.S. stock markets closed lower on Friday as market participants remained highly concerned regarding a near-term recession. A weak economic data also dented investors’ confidence on risky asset like equities. All three major stock indexes ended in negative territory. However, last week was a mixed one for Wall Street.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) slipped less than 0.1% to close at 33,300.62. Notably, 19 components of the 30-stock index ended in negative territory and 11 in positive zone. The tech-heavy Nasdaq Composite finished at 12,284.74, declining 0.4% due to weak performance of large-cap technology stocks.

The S&P 500 fell 0.2% to end at 4,124.08. Seven out of 11 broad sectors of the benchmark index closed in positive territory while four ended in negative zone. The Consumer Discretionary Select Sector SPDR (XLY) dropped 0.9% while the Utilities Select Sector SPDR (XLU) rose 0.6%.

The fear-gauge CBOE Volatility Index (VIX) was up 0.6% to 17.03. A total of 9.33 billion shares were traded on Friday, higher than the last 20-session average of 10.65 billion. Decliners outnumbered advancers on the NYSE by a 1.46-to-1 ratio. On Nasdaq, a 1.49-to-1 ratio favored declining issues.

Weak Economic Data

The University of Michigan reported that the U.S. consumer sentiment fell to a six-month low in its preliminary reading for May. The metric fell from April’s final reading of 63.5 to 57.7, marking its lowest since November 2022. The consensus estimate was 63.

The present situation sub-index, which measures the consumer’s thinking about their current financial situation, dropped to 64.5 in May from 68.2 in April. The Expectation sub-index, which measures consumer’s expectation for next six month, declined to 53.4 in May from 60.5 in April.

Consumer’s expectations for near-term inflation declined marginally in May to 4.5% after climbing 4.6% in April from 3.6% in March. However, inflation expectations over the next five years rose to 3.2% from 3% in April, reflecting its highest reading since 2011. The report said that the “Consumers’ worries about the economy escalated in May alongside the proliferation of negative news about the economy, including the debt crisis standoff.”

A significant drop in consumer sentiment is very bad for the U.S. economy. Weak sentiment may result in a contraction in consumer spending going forward. However, consumer spending is the biggest driver of the U.S. economy constituting more than 2/3 of the GDP. Low consumer spending may lead to a recession.

Regional Banks Continue to Struggle

Market participants remained highly concerned that the ripple effect of the regional bank’s failure may shake the broad market. In March, Silicon Valley Bank became the first major casualty of the Fed’s aggressive rate hike. The collapse of Silicon Valley Bank was the biggest bank failure since the days of the great recession of 2008.

In March, the Signature Bank became the second casualty of regional bank fiasco. On May 1, JPMorgan Chase & Co. JPM acquired the substantial majority of assets and assumed the deposits and certain other liabilities of First Republic Bank from the Federal Deposit Insurance Corp. All three banks reported a significant decline in their deposits as the root cause of bank failure.
JPMorgan Chase currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

On May 11, PacWest Bancorp PACW reported that its deposits declined 9.5% during the week ended May 5. During the first quarter, PacWest’s total deposits declined 16.9%, forcing the bank to consider strategic asset sales to reshape its balance sheet.

Weekly Roundup

Last week was a mixed one. The Dow and the S&P 500 fell 0.3% and 1.1%, respectively, while the Nasdaq Composite rose 0.4%. The Dow and the S&P 500 declined for two consecutive weeks on concerns of a recession. On the other hand, the Nasdaq Composite ended a four-week winning streak on expectation that the current interest rate hike cycle has reached its end.

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