Markets retreat on failure of Silican Valley Bank

Dow dropped 345, decliners over advancers a big 6-1 & NAZ was off 199.  The MLP index fell 2+ to the 222s & the REIT index sold-off 12+ to the 360.  Junk bond funds were mixed & Treasuries continued to see very heavy buying, sharply reducing Treasury yields.  Oil was up about 1 to the 76s & gold soared 35 to 1865 (more on both below).

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The Federal Deposit Insurance Corp says it has seized control of Silicon Valley Bank (SIVB), confirming the lender was shut down by California regulators amid a run on the bank.  The FDIC said  that SIVB in a press release as closed by the California Dept of Financial Protection & Innovation on Fri, which in turn appointed FDIC as the receiver of all insured deposits of the bank.  SIVB, which caters to the venture capital community, had 17 branches in California & Massachusetts.  It was the 17th-largest bank in the US & has been considered a go-to for startups for decades.  This is the 2nd-largest bank to close in the US since 2008.  Earlier this week, SIVB disclosed mounting losses & shares plummeted more than 60% before being halted.  The bank was in the middle of a liquidity crisis after announcing plans for a $1.25B stock sale with little interest.  SIVB, which caters to the venture capital community, had 17 branches in California & Massachusetts. It was the 17th-largest bank in the US & has been considered a go-to for startups for decades.  This is the 2nd-largest bank to close in the US since 2008. 

Silicon Valley Bank shut down by regulators

The US housing market is taking a hard hit from higher mortgage rates & luxury home sales are seeing the worst of it.  Sales of luxury homes dropped 45% during the 3 months ended Jan 31 compared with the same period the year before, according to Redfin, a real estate brokerage.  Redfin defines luxury homes as those estimated to be in the top 5% based on the estimated market value.  Sales of non-luxury homes were down about 38% during that period.  Miami, which had seen a massive influx of wealthy buyers migrating from the Northeast in the earlier days of the Covid pandemic, saw sales drop nearly 69%.  That was followed by the Nassau County-Suffolk County region on New York's Long Island, home to the Hamptons – down nearly 63%.  Some of the priciest California markets also saw big drops in sales because they, too, experienced big pandemic sales.  While not all luxury buyers use mortgages, they are affected by the broader economy & more specifically the stock market.  Volatility in financial markets is therefore having an outsized effect on the luxury real estate market.  “The silver lining for the luxury buyers who are still in the market is that competition is sparse, and jumbo loans now often have lower mortgage rates than other loan types, in part because there’s less risk that high-end buyers will default on their mortgages,” said Chen Zhao, Redfin economics research head.  “Wealthy house hunters are also frequently offered additional rate discounts from their banks as a perk for storing substantial funds there.”  Competition is easing not just because of falling demand.  Supply is rising. Inventory rose 7% year over year, which was the largest increase since 2015.  Yet supply is also still historically tight, not that much higher than the record lows of 2022.  New listings are also down 22%, indicating that supply is higher because homes are sitting longer.  That lack of supply has pushed luxury home prices higher.  The median price was up 9% compared with the same period the year before to $1.09M.  Luxury prices hit an all-time high of 1.1M in the spring of last year.

Luxury home sales plunge 45%, with Miami and the Hamptons hit hardest

Ulta (ULTA) topped expectations for its holiday-qtr earnings & revenue, as shoppers continued to save room in their tighter budgets for beauty products during the celebration season.  The holiday season meant more people were buying beauty products to prepare for parties & to use as gifts.  “We describe it as ‘gifting and glamming,’” CEO Dave Kimbell said.  The affordable luxuries of the beauty sector have made it a mainstay spending category, even as inflation shrinks consumer wallets & makes necessities like groceries more expensive.  Kimbell said that consumer spending across income levels remained strong in Q4 & that customers are not trading down to cheaper options, despite higher prices on  company products.  Same-store sales grew 15.6% in Q4, slower growth than the 21.4% jump it posted in the same qtr the previous year, but well above estimates of 8.4%.  Kimbell said that makeup, haircare, skincare & fragrance products all saw double-digit sales growth in Q4.  He added that the wellness segment, which includes items like nutritional supplements & silk pillowcases, is also growing after the pandemic put a renewed emphasis on self care.  As a percentage of net sales, gross profit stayed flat compared to the year-ago qtr in part due to higher inventory shrink.  Kimbell cited organized retail crime as the primary reason for shrink, which he said is a “retail-wide challenge.”  EPS was $6.68 vs $5.41 Q4 of 2021.  Looking ahead, the company is expecting full-year revenue for 2023 to be $10.95-11.05B along with EPS of between $24.70-25.40.  The forecast called for 2023 revenue of $10.74B on EPS of $24.25.  ULTA expects the majority of that growth to come during H1-2023 & level off in H2.  Kimbell said though higher prices won't necessarily come down, the company is planning to decelerate the level of its price hikes.  The stock rose 1.25.
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Ulta posts strong holiday quarter as shoppers squeeze makeup into their budgets

Gold futures climbed & posted a gain for the week.  Prices for the metal got a boost as the $ & Treasury yields weakened in the wake of the monthly US jobs data, which showed a robust 311K new jobs created in Feb, but also a rise in the unemployment rate to 3.6%.  Gold is apparently sensing the potential for trouble ahead in the banking sector & serving as a safe haven for investors.  Concerns about contagion in the banking sector climbed as the California Dept of Financial Protection & Innovation & the Federal Deposit Insurance Corporation closed Silicon Valley Bank after its parent company disclosed large losses from securities sales.  Gold for Apr rose $32 (1.8%) to settle at $1867 an ounce & based on the most-active contract, prices rose 0.7% for the week

Gold futures up 1.8% for the session, gain for the week

Oil prices climbed, paring their loss for the week to less than 4%.  The crude-oil market is caught between unforgiving inflation & a resurgent job market.  An unrelentless jobs report & a dull outlook from Federal Reserve Chair Jerome Powell reaffirmed the conviction that the Fed has no choice but to raise rates further.  Still H2 should see tight fundamentals, with China potentially seeing a faster, less complicated reopening, supporting higher energy demand.  Apr West Texas Intermediate crude  rose 96¢ (1.3%) to settle at $76.68 a barrel, with prices for the front-month contract down 3.8% for the week.

Oil futures gain for the session, pare their loss for the week

Financial regulators have closed SIVB & taken control of its deposits by the Federal Deposit Insurance Corp.  The FDIC has done this before.  They will sort thru the mess & a big bank will take over the remaining assets.  A bank failure is unsettling for investors & depositors, but life will go on in the stock market which has plenty of problems to deal with between higher rates & a possible recession.  This was a very brutal week for Dow which is at its lows not seen since late Oct.

Dow Jones Industrials