Yesterday’s slow-moving trainwreck began with Silvergate Capital Bank (SI). But it spread to Silicon Valley Bank (SVB) and now everyone is muttering about possible contagion. Meanwhile, the 200-day moving average didn’t hold, and while it might not matter if there is a rebound today, there is also a chance chart schools will point to today’s session as an example of the dangers of strong support finally relenting. 

For the S&P 500, the next downside support point is 3,800.

There was nowhere to hide as all sectors finished lower.

The real story was the banks -7.70%, but the selloff in oil services also caught our attention.

Silicon Valley Jargon (Timber)

Silicon Valley is known for words and phrases that begin there and often spread to the rest of the nation. Now, the folks in the Valley get to use a word already well-known on Main Street, America: Timber!

SVB Financial was a high-flying beast, riding the wave of hot tech stocks to become one of the largest banks in the nation. Now, those holdings and exposure to long duration bonds have taken a toll. 

We are witnessing a good old-fashioned run on the bank. Down 60% during the session and 23% more in after-hours trading. I do not think there is contagion. By the way, headlines came across that mentioned Jamie Dimon and Jeffrey Epstein, and that triggered a few sells as well. Apparently, it has more to do with a former employee, but it’s not a good look.

Portfolio Approach

There are no weighting changes this morning to our Hotline Model Portfolio.

Today’s Session

The jobs report came in higher than expected (surprise!), but there are elements of the report more important to the Fed than headline or whether it beat consensus (wink).

Unemployment Rate

The tick up in unemployment matters more than the headline for Jay Powell. This number would have been even higher if more people had come back to the labor force.   The unemployment rate rocketed higher for less than high school grads versus college – more evidence taxpayers should pay student loans.

Wages

Wages came in below consensus, and certainly below the rate of inflation, as the hourly workweek was also less than expected.

Employment Report Components	Actual	Cons	Prior
Average Hourly Earnings M/M	0.2%	0.3%	0.3%
Average Hourly Earnings Y/Y	4.6%	4.7%	4.4%
Average Weekly Hours All Employees	34.5	34.6	34.7
Labor Force Participation Rate	62.5%	62.4%	62.4%
Unemployment Rate	3.6%	3.4%	3.4%

Massive two-year swoon.

Bonds yields are imploding.  The two-year, in particular, has beat a hasty retreat. Stocks are going to struggle, and all eyes are on SVB, but Powell got almost everything he wanted today to still secretly pine for a soft landing.

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