Because of the massive decline in high-flyers like Tesla and cryptocurrency, investors are expected to be turbulent over the next two weeks.
However, market experts believe that the market is more likely in a downturn that ends than one that becomes bigger.
After dropping through it, the S&P500 maintained its 50-day moving average. After much steeper early losses, it finished the day down only 0.3 percent. After a sharp intraday sell-off, the Nasdaq was down less than 0.1 percent, nearly flat.
Tesla finished at $563.46, down 2.5 percent but still well above its lows. It has dropped dramatically since reaching a high of $900 on January 25. The electric vehicle manufacturer has been linked to bitcoin since founder Elon Musk announced that the digital currency could be used to purchase cars and that the company had a $1.5 billion stake.
He rescinded the plan to use cryptocurrency to purchase vehicles, but stated that Tesla would keep its bitcoin. Musk tweeted with emojis on Wednesday that Tesla had “diamond hands,” implying that the company would keep the cryptocurrency.
Speculative stocks took a beating, but they also recovered some of their losses. The ARK Innovation ETF fell 1.7 percent, while the iShares Nasdaq Biotechnology ETF fell nearly 1%. Some tech companies, such as Facebook and Alphabet, were able to shake off losses and end the day with gains on Wednesday.
Inflation worries among investors
According to Stockton, the S&P500 level of 3,957 is a more important potential support level than the 50-day moving average of 4,081. The 50-day moving average is the average closing price of the previous 50 sessions, and a close below it is regarded as a negative indicator. The S&P500 closed at 4,115 on Wednesday.
“I believe the market is attempting to digest a variety of evolving story lines,” said Dan Deming, managing director at KKM Financial. He stated that the market was trading on the economic reopening as it reached new highs. “We are now seeing the market attempting to justify the valuations.”
One major concern is that inflation will accelerate and become more persistent than the Fed anticipates, forcing the central bank into a tightening cycle. The release of the Fed’s meeting minutes on Wednesday afternoon added to that concern.
According to the minutes, if the economy improves, some Fed officials may consider reducing bond purchases at upcoming meetings. The stock market sell-off gained traction in the media before reversing losses.
Keeping an eye on yields
Once the Fed begins to taper its bond purchases, it will gradually phase them out before raising interest rates.
Bonds continued to fall as stocks recovered from the impact of the Fed minutes. The 10-year yield, which moves in the opposite direction of price, rose to 1.68 percent before falling to 1.67 percent.
“We will be watching the bond market’s reaction to any further equity market weakness to see if the market truly wants to believe, contrary to the rapidly accumulating evidence, that inflation is transitory,” he said.
According to Emanuel, the S&P500 could test the 4,000 level. He believes that rising bond yields are a negative for stocks because higher inflation signals that the Fed may not keep interest rates as low as the market expects.
According to CFRA’s chief investment strategist, Sam Stovall, the market still has a lot of positive breadth. For example, 98 percent of the S&P subindices are trading above their 200-day moving average.
He believes the fact that the S&P500 was able to close above 4,063 — the low of May 12 — was a positive sign for the market and may help lift stocks on Thursday. Futures prices were marginally lower.
Stovall, on the other hand, said it’s not surprising that the market has been paused and pulling back. He stated that the S&P500 has now gone 239 days without a 5% correction. The average time span between a 5% pullback is 177 days.
Despite the volatility, Signature Bank is expected to increase its price
“Given these cross-currents, which also includes regulators in all countries establishing guard rails, a wild ride in crypto is to be expected. “With that said, we continue to have ‘diamond hands’ in terms of our bullish view on Signature, particularly with digital asset related deposits likely crossing the 20% of total threshold based on updated disclosures,” said JPMorgan lead analyst Steven Alexopoulos in a note.
Signature established its digital asset banking team in April 2018 and launched the Signet payments platform to clients in January 2019, following the launch of a new application programming interface last summer, according to a February JPMorgan note.
Shares of the regional bank are up more than 78 percent year to date, but are down about 2 percent this week due to volatility in the cryptocurrency market.
Bitcoin, the original and largest cryptocurrency, fell to its lowest level since February, falling 30 percent to near $30,000 at one point on Wednesday in a major sell-off. Bitcoin was trading about 8% lower on Friday, at $37,064.90. Ether, the second-largest cryptocurrency, dropped about 12% to $2,477.52.
Signature, on the other hand, reported that recent crypto volatility had not affected deposit flows, according to JPMorgan’s Friday note. According to the note, Signature stated on a recent conference call that total deposits increased by around $8 billion this quarter on an average through May 15.
Deposits increased by 16.8 percent — or approximately $10.7 billion — in the fiscal first quarter to $73.9 billion, according to the company. Signature’s annual asset growth is expected to be in the upper end of the company’s $8 billion to $16 billion guidance range, according to JPMorgan.
“This trend confirms our thesis that institutional adoption of digital assets is still in its early stages, with a tremendous runway for growth ahead,” Alexopoulos said.
JPMorgan’s outlook on Signature shares is more “to the bank” than “to the moon,” as it monitors regional banks that could play a role in “what could amount to the most exciting new asset class to be formed in any of our lifetimes.”