The S&P 500 (SP500) on Friday added 1.43% for the week to end at 3,916.64 points, posting losses in three out of five sessions. Its accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) rose 1.06% for the week.
The benchmark index’s advance came amid the worst financial crisis in 14 and a half years. During the week, two U.S. regional banks – Signature Bank (SBNY) and SVB Financial’s (SIVB) Silicon Valley Bank – were taken over by U.S. regulators due to liquidity issues.
Meanwhile, major banks including JPMorgan (JPM) and Bank of America (BAC) came together and pledged $30B in deposits to another beleaguered regional bank, First Republic Bank (FRC), after depositors fled to take out their money. The Federal Reserve and the government has rushed to quell fears over instability in the financial system by announcing measures to support banks.
The bank crisis also reached Europe. Switzerland’s second-biggest bank Credit Suisse (CS) revealed “material weaknesses” in its reporting procedures, prompting its top shareholder to rule out providing any further financial assistance to the bank. The news led to a rout in shares of the lender. The Swiss central bank stepped in and said it would provide the bank with a $54B lifeline.
The events have caused traders to flee financial stocks during the week and snap up safe-haven assets such as bonds and gold, while also pouring money into technology stocks, which has helped lift the S&P 500 (SP500). The tech-heavy Nasdaq Composite (COMP.IND) gained more than 4% for the week.
The weekly gain in the benchmark S&P has also been spurred by the recalibration of expectations towards a 25 basis point rate hike by the Fed at its two-day monetary policy committee meeting starting on Tuesday. Investors are betting that the central bank would be unwilling to hike rates by a larger quantum in light of the turmoil in the financial sector.
The readjustment in Fed rate expectations have also been sparked by economic data that has showed a moderation in inflation. Consumer price index for February rose, but at a smaller rate than in January, while producer price index unexpectedly fell.
“We expect that the FOMC will hike by 25bp next week, taking the funds rate target range to 4.75-5.0%,” JPMorgan’s Michael Feroli said in a preview note.
“The press conference will take on added importance next week. We expect (Fed chair) Powell will prioritize economic developments and the fight against inflation. Of course, he will need to spend considerable time discussing banking system stress and the Fed’s response. But we believe he will distinguish monetary policy decisions from financial stability actions,” Feroli added.
Turning to the weekly performance of the S&P 500 (SP500) sectors, seven ended in the green, led by heavyweight sectors Communication Services and Technology. Energy was the top loser, as oil prices slumped amid the flight to safe assets. Financials slumped about 6%. See below a breakdown of the weekly performance of the sectors as well as their accompanying SPDR Select Sector ETFs from March 10 close to March 17 close:
#1: Communication Services +6.94%, and the Communication Services Select Sector SPDR Fund (XLC) +5.26%.
#2: Information Technology +5.66%, and the Technology Select Sector SPDR ETF (XLK) +5.66%.
#3: Utilities +3.90%, and the Utilities Select Sector SPDR ETF (XLU) +3.96%.
#4: Consumer Discretionary +2.35%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) +2.27%.
#5: Health Care +1.31%, and the Health Care Select Sector SPDR ETF (XLV) +1.38%.
#6: Consumer Staples +1.41%, and the Consumer Staples Select Sector SPDR ETF (XLP) +1.41%.
#7: Real Estate +0.08%, and the Real Estate Select Sector SPDR ETF (XLRE) +0.36%.
#8: Industrials -2.45%, and the Industrial Select Sector SPDR ETF (XLI) -2.35%.
#9: Materials -3.51%, and the Materials Select Sector SPDR ETF (XLB) -3.42%.
#10: Financials -6.09%, and the Financial Select Sector SPDR ETF (XLF) -5.92%.
#11: Energy -7.02%, and the Energy Select Sector SPDR ETF (XLE) -6.85%.
Below is a chart of the 11 sectors’ YTD performance and how they fared against the S&P 500. For investors looking into the future of what’s happening, take a look at the Seeking Alpha Catalyst Watch to see next week’s breakdown of actionable events that stand out.