Stock Market News for May 5, 2023

·4 min read

Wall Street closed sharply lower on Thursday as the regional banking crisis deepened. Fears of a contagion dominated trade as larger banks also started feeling the heat. The Dow turned negative for the year. All three major indexes ended in the red for the fourth consecutive session.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.9% or 286.50 points to close at 33,127.74. Twenty-four components of the 30-stock index ended in negative territory, while six ended in positive.

The S&P 500 dropped 0.7% or 29.53 points to close at 4,061.22. Nine of the 11 broad sectors of the benchmark index ended in negative territory. The Communication Services Select Sector SPDR (XLC), the Financials Select Sector SPDR (XLF) and the Energy Select Sector SPDR (XLE) dropped 1.6%, 1.3% and 1.1%, respectively, while the Real Estate Select Sector SPDR (XLRE) advanced 0.9%.

The tech-heavy Nasdaq lost 58.93 points, or 0.5%, to finish at 11,966.40.

The fear-gauge CBOE Volatility Index (VIX) was up 9.5% at 20.09. A total of 12 billion shares were traded on Thursday, higher than the last 20-session average of 10.5 billion. Decliners outnumbered advancers on the S&P 500 by a 2.40-to-1 ratio. The S&P 500 registered four new highs and 27 new lows, while the Nasdaq posted 47 new highs and 412 new lows.

PacWest’s Woes Weighing Down on Markets

The crisis in the regional banking sector seems to have claimed its latest victim in PacWest Bancorp PACW, shares of which dropped 50.6% on Thursday, and an astounding 90% since the crisis hit in March. The bank has made a statement saying that it is in talks with potential partners and investors about strategic options to deal with its woes.

Per the statement, the planned sale of its $2.7 billion lender finance loan portfolio is apparently still on track, and the company has been approached by several potential partners and investors to discuss possible options, including a sale. This sparked a broad sell-off in the regional banking sector, and the SPDR S&P Regional Banking ETF KRE plunged 5.5%. Even larger banks felt the heat, as the general notion is that the crisis would entail a constraint in money flow in the economy.

Consequently, shares of Marathon JPMorgan Chase & Co. JPM and Wells Fargo & Company WFC fell 1.4% and 4.3%, respectively. JPMorgan Chase carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, there is a silver lining in this crisis. There is a growing feeling among investors that the regional banking crisis is serving the Fed’s agenda. With cash flow being affected, the crisis might push the Fed to re-evaluate its rate-hike policy and bring a premature end to the string of hikes seen since early 2022. Whether it achieves this remains to be seen, but currently, it is acting as a major dampener of investor mood.

Oil Prices End Freefall After ECB Slows Down

Oil prices ended mixed on Thursday after the European Central Bank reined in its pace of rate hike by increasing 25 bps, its smallest since last summer. However, the prices are poised to end the week in the red, and energy continues to be one of the biggest drags on the market.

Brent crude settled $0.17 higher, or 0.2%, to $72.50/barrel. WTI crude fell $0.04, or 0.06%, to close at $68.56/barrel.

Economic Data

The Labor Department said on Thursday that initial jobless claims rose to 242,000, increasing 13,000 for the week ending Apr 29, from the previous week. The previous week's level was revised down by 1,000 from 230,000 to 229,000. The four-week moving average increased to 239,250, marking a rise of 3,500 from the previous week. The previous week's average was revised down by 250 from 236,000 to 235,750.

Continuing claims came in at 1,805,000 for the week ending Apr 22, decreasing 38,000 from the previous week. The previous week's level was revised down by 15,000 from 1,858,000 to 1,843,000. The 4-week moving average came in at 1,828,250, marking a decrease of 4,500 from the previous week's revised average. The previous week's average was revised down by 3,750 from 1,836,500 to 1,832,750.

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