On Monday, US stocks traded mixed as markets assessed the latest news from the banking sector. Reports over the weekend of further government support for banks sent shares higher on Monday, and a Senate hearing on the collapse of Silicon Valley Bank is scheduled for this week.
Banking Sector Rebounds on News of First Citizens Acquisition of SVB Assets
First Citizens will acquire $72 billion of Silicon Valley Bank's assets for a $16.5 billion discount. The news spurred a rebound in regional bank stocks, which have been under pressure since SVB imploded earlier this month.
Also helping bank shares was a report from Bloomberg over the weekend that more government support could be offered to banks, in part to help First Republic further stabilize. Shares of the California-based lender climbed 27% in early morning trading to end the day 12% higher. PacWest rose as much as 10% in the early morning, ending about 3% higher.
Senate Banking Committee Set to Hold Hearing on Recent Turmoil
The Senate Banking Committee is set to hold a hearing on the recent banking sector turmoil on Tuesday. Eyes are also on key economic data releases this week, with investors expecting the Conference Board's Consumer Confidence report to roll out on Wednesday and the Personal Consumption Expenditures index, the Fed's preferred inflation measure, to come out on Friday.
Tech Stocks Overvalued After Investors Flock to Sector for Safety
Tech stocks are now among the most overvalued after investors flocked to the sector for safety during the bank crisis, Barclays says. A potential credit crunch puts tech at risk in a shallow recession, Barclays said. The S&P 500 Information Tech sector has climbed 17% this year versus the S&P 500's 4% gain.
Banking Turmoil Causes Flight to Safety and Tech Overvaluation
The banking crisis that erupted this month ignited a rush into large-cap tech stocks, and the flight to safety has left the sector among the most overvalued in the market, Barclays said in a note Monday. The S&P 500 Information Technology sector has climbed nearly 6% over the past month, solidifying its place as the second-best performing group of the S&P 500 during 2023.
Venu Krishna, Head of US Equities Strategy at Barclays, warns against chasing the Tech trade given elevated valuations and exigent inflation/rate risks. "Flight to safety has benefited Tech thanks to lower yields and the sector's quality bias. We caution against chasing this trade, however, considering elevated valuations and exigent inflation/rate risks," he wrote.
Barclays Recommends Quality Stocks at Less Demanding Valuations
Instead of chasing another crowded trade that is vulnerable to the next unwind, Barclays recommends seeking a safe haven among quality stocks at less demanding valuations.
Krishna warns that Tech is more intertwined with the real economy than ever in a post-pandemic world, and that premium long-duration equities are not an appropriate safe haven as we deal with both rising rates and tightening credit.
Barclays Predicts Shallow Recession for US Economy
Barclays said the banking crisis pushed it closer to its view that a shallow recession will take hold of the US economy sometime this year. In that scenario, it sees the S&P 500 ending at 3,725, which represents a 6.1% decline from Friday's close at 3,970.99.
Investors Have Flocked to Mega-Cap Tech Stocks
Investors have flocked to mega-cap tech stocks like Apple and Microsoft as they generally screen well on quality metrics because of their strong balance sheets, high profitability, and earnings stability, Barclays said.
Dow Jones Leaders: Apple, Microsoft
On Monday, the Dow Jones had a mixed day with some stocks performing better than others. Apple shares saw a decline of 1.2%, bringing an end to their two-day win streak, but still remained near their recent highs.
Microsoft shares, on the other hand, are attempting to break out above a flat base's 276.86 buy point, which is a promising sign for investors. However, during Monday's 1.5% loss, the shares closed back below the entry. The stock is still below the 5% buy area that goes up to 290.70.
Microsoft's Recent Surge
Microsoft shares have recently surged due to the company's announcement that it is adding artificial intelligence (AI) tools to its popular Office productivity applications. This follows the company's investments in AI startup OpenAI, which is the firm behind the popular ChatGPT application.
Investors are optimistic about Microsoft's investment in AI, as they believe that it will help the company to stay ahead of its competitors. By integrating AI tools into its products, Microsoft hopes to make them more efficient, user-friendly, and customizable.
What's Next for Dow Jones Stocks?
While the Dow Jones had a mixed day on Monday, investors are still optimistic about the future of the market. Many are keeping a close eye on Apple and Microsoft, as these two stocks are seen as leaders in the industry.
Apple's recent decline is not a cause for concern, as shares still remain near their recent highs. Meanwhile, Microsoft's recent announcement regarding AI integration is expected to have a positive impact on the company's stock prices.
Investors remain bullish on the Dow Jones, and many are optimistic about the future of the market. As always, it's important to keep a close eye on market trends and to make informed investment decisions.
Bottom Line
US stocks traded mixed on Monday as markets assessed the latest banking sector news. The sale of Silicon Valley Bank's assets to First Citizens Bank has spurred a rebound in regional bank stocks. Reports of potentially more aid for banks from the government also helped bank shares. The tech sector has benefited from the flight to safety but is now among the most overvalued sectors in the market, according to Barclays. In contrast, Barclays recommends seeking safe haven among quality stocks with less demanding valuations. With key economic data releases this week and a Senate hearing on the recent banking sector turmoil, investors are keeping a close eye on market movements.
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