What to grasp this week

March has long been expected to serve as a pivotal month for the Federal Reserve.

And after the month’s first two weeks brought the central bank a year’s worth of headlines, in the coming week what investors had expected to be the main event finally arrives.

On Wednesday, the Fed will announce its latest monetary policy decision at 2 p.m. ET, with Fed Chair Jerome Powell set to follow this announcement with a press conference at 2:30 p.m. ET. Alongside its policy decision, the Fed will also publish updated forecasts for inflation, unemployment, economic growth, and interest rates for the balance of this year and beyond.

After Powell testified before the Senate Banking Committee on March 7 that the Fed would likely raise rates “higher than previously anticipated” in response to stubborn inflation, investors were all but certain the Fed would raise the target range for its benchmark interest rate by 0.50% on March 22.

Two days later, a nascent banking crisis cast a shadow over the Fed’s plans. By Sunday night, March 12, the Fed was part of a government-led backstop of deposits across the U.S. financial system. Investors are now roughly split on whether the Fed will raise rates at all on Wednesday.

“We still expect the Fed to raise its policy rate by 25 basis points next week but also convey a less strident inflation-fighting message than thought a few weeks ago aimed at calming market anxiety,” wrote Bob Schwartz, senior economist at Oxford Economics, in a note to clients on Friday.

“While the banking woes will certainly command attention, we believe that it is not systemic but more of a liquidity issue that the Fed can contain with its lending facilities,” Schwartz added. “The wildcard going forward will be the reaction in the financial markets, as maintaining financial stability is one of the mandates of the Fed.”

File – Federal Reserve Chair Jerome Powell speaks during a news conference Wednesday, Dec. 14, 2022, at the Federal Reserve Board Building, in Washington. As the primary regulator of Silicon Valley Bank, the Federal Reserve is coming under sharp criticism from financial watchdogs and banking experts. (AP Photo/Jacquelyn Martin, File)

Last week, government officials, regulators, and private sector leaders in the banking world sought to stabilize the U.S. financial system after the rapid collapse of Silicon Valley Bank and seizure of Signature Bank.

The week’s key development came Thursday afternoon when a consortium of 11 U.S. banking giants announced they would funnel some $30 billion in deposits to First Republic (FRC), which investors and regulators feared would be the next institution to fail.

Even with last week’s capital injection, shares of First Republic lost over 70%; on Friday alone the stock fell some 33%.

Amid this flurry of news from the banking sector, the major U.S. stock indexes finished the week mixed, with the Nasdaq Composite (^IXIC) rising more than 4%, the S&P 500 (^GSPC) rising 1.4%, and the Dow Jones Industrial Average (^DJI) logging modest losses.

Financial stocks were hard hit, however, with KBW Bank Index (^KBX) falling more than 14% for the week, while the KBW Regional Bank Index (^KRX) lost a little over 9%. Since the start of March, these indexes have lost 27% and 17%, respectively.

Over the weekend, U.S. investors kept an eye toward Europe, where the latest reporting from The Financial Times suggested UBS (UBS) was nearing a deal to take over Credit Suisse (CS) in a $1 billion deal that would value Credit Suisse at about $0.27 per share. Credit Suisse shares trading in New York closed Friday’s session at $2.01.

While developments from the Federal Reserve and the global banking world will remain the top focus for investors, a smattering of economic and earnings reports will garner attention throughout the week.

Existing home sales data out Tuesday and Wednesday morning’s weekly update on mortgage applications will offer readings on the housing sector, which has been an unexpected beneficiary of the banking crisis given the collapse in Treasury yields and resulting drop in mortgage rates.

Investors will also keep a close eye on Thursday morning’s reading on services and manufacturing activity from S&P Global.

On the earnings side, results from Foot Locker (FL) on Monday, Nike (NKE) on Tuesday, Darden Restaurants (DRI) on Thursday will offer updates on the state of the U.S. consumer.

Economic Calendar

Monday: No notable data set for release.

Tuesday: Existing home sales, February

Wednesday: MBA Mortgage Applications; Federal Reserve monetary policy decision

Thursday: Initial jobless claims; New home sales, February; Kansas City Fed manufacturing index

Friday: Durable goods orders, February; S&P flash U.S. composite PMI

Earnings Calendar

Monday: Foot Locker (FL), Pinduoduo (PDD)

Tuesday: Nike (NKE), GameStop (GME), Tencent Music (TME), AAR Corp. (AIR)

Wednesday: Ollie’s Bargain Outlet (OLLI), Chewy (CHWY), Petco (WOOF), Winnebago (WGO), Steelcase (SCS), Worthington Industries (WOR), KB Home (KBH)

Thursday: General Mills (GIS), Darden Restaurants (DRI), Accenture (ACN), FactSet (FDS)

Friday: No notable companies expected to report.

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