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Stock Market News for May 2, 2023

Wall Street closed slightly lower on Monday, dragged down by energy stocks. The government’s takeover and subsequent sale of the First Republic Bank over the weekend dominated proceedings. Treasury yields went up. All three major indexes ended slightly in the red.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.1% or 46.46 points to close at 34,051.7. Nineteen components of the 30-stock index ended in negative territory, while 11 ended in positive.

The S&P 500 remained virtually flat at 4,167.87. Six of the 11 broad sectors of the benchmark index ended in negative territory. The Energy Select Sector SPDR (XLE), the Consumer Discretionary Select Sector SPDR (XLY) and the Real Estate Select Sector SPDR (XLRE) dropped 1.1%, 1% and 0.9%, respectively, while the Industrials Select Sector SPDR (XLI) advanced 0.5%.

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The tech-heavy Nasdaq declined 13.99 points, or 0.1%, to finish at 12,212.60.

The fear-gauge CBOE Volatility Index (VIX) was up 1.9% at 16.08. A total of 10.2 billion shares were traded on Monday, lower than the last 20-session average of 10.4 billion. Decliners outnumbered advancers on the NYSE by a 1.36-to-1 ratio. On the Nasdaq, a 1.17-to-1 ratio favored declining issues.

First Republic Sale Weighs on Regional Banks

First Republic Bank FRC was one of the first and biggest banks to get embroiled in the regional banking crisis of March, and the bank was finally taken over by regulators over the weekend and subsequently sold to JPMorgan Chase & Co. JPM following an auction. The banking behemoth will pay $10.6 billion to the U.S. Federal Deposit Insurance Corp (FDIC) to take control of most of the San Francisco-based bank's assets.

The failed bank’s offices and branches around the country would re-open as JPMorgan starting next week. The SPDR S&P Regional Banking ETF KRE fell 2.8% on the news and investors remain pensive about this development and whether this would kickstart yet another crisis in the sector. Also, with the Fed slated to announce its rate-hike decision on Wednesday, whether the woes of First Republic have a bearing on the event remains to be seen.

Consequently, shares of Citizens Financial Group, Inc. CFG and U.S. Bancorp USB fell 6.9% and 3.9%, respectively. Both carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Treasury Yields Rise After Strong Economic Numbers

U.S. treasury yields went up throughout the session, adding to a boost from the release of economic data Monday. The benchmark 10-year yield increased 12.4 bps to 3.576%. The 30-year bond went up 14 bps to yield 3.8172%. The 2-year note was last up 7.5 bps at 4.1386%.

With economic data continuing to show resilience in the economy, the bond market is likely factoring in that the Fed would not be opting to go for a rate pause in the immediate future, which would eventually lead to a broad slowdown.

Energy Prices Become a Drag

Crude oil prices fell globally on weak economic data from China and the expectation of yet another interest rate hike by the Fed on Wednesday. WTI crude settled down 1.5% at $75.66/barrel, while Brent ended at $79.31, down 1.3% on the session. Energy stocks became the biggest losers on the day.

Economic Data

The Institute for Supply Management reported that ISM Manufacturing Index for April had come in at 47.1. This is an increase from the unrevised March number, 46.3.

The U.S. Census Bureau announced that construction spending in March had increased by 0.3%, while the February number has been revised to a decline of 0.3% instead of the decline of 0.1% reported previously.

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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report

U.S. Bancorp (USB) : Free Stock Analysis Report

First Republic Bank (FRC) : Free Stock Analysis Report

Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report

SPDR S&P Regional Banking ETF (KRE): ETF Research Reports

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