Markets calm down as Brexit fears fade

Pummeled in the market wipeout from Brexit, bank stocks could be among the catalysts that help boost the S&P 500's gains on the final trading day of the second quarter Thursday.

U.S. bank stocks rose in pre-opening trading Wednesday, after a number raised dividends and announced buybacks following government stress test results. Shares of JPMorgan Chase, Bank of America and Citigroup were higher after an already positive day. However, Deutsche Bank slumped to a 30 year low, after failing the Fed test and receiving an IMF warning. Santander also failed.

"Bank stocks are helping the market bounce back more than most traders thought it would," said Scott Redler, partner with The SPDR S&P Bank ETF lost 12 percent in the violent sell-off Friday and Monday that followed the U.K.'s vote to exit the European Union. It has since regained 6 percent.

The XLF Financial Sector SPDR ETF was up nearly a percent in early trading.

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

The S&P 500, up 1.7 percent Wednesday to 2,070, is now up 0.5 percent for the quarter. Redler said he is looking to see if it can regain its 50-day moving average at around 2,076. The S&P 500 lost 5.3 percent in the two-day post Brexit sell-off and has regained more than half of it.

"I think the market went down as much as people thought it would, but it rallied back faster than people thought," said Redler. "It showed you sellers didn't really have much power. It doesn't mean we'll break out to new highs next week, but it shows you resiliency is still here and it will ultimately break to new highs."

Quarter-end window dressing has been behind some of the buying, just as quarter end is behind some of the buying in bonds. The 30-year Treasury yield edged near its all-time low as buyers flocked to the long end of the Treasury curve, seeking both safety and yield in a world of negative rates. The 30-year yield was at 2.32 percent late in the day.

As for stocks, the Dow's 1.6 percent gain took it to 17,694 Wednesday, but it was flat — up less than 0.1 percent — for the quarter so far. The Nasdaq was 1.8 percent higher Wednesday but is down 1.9 percent for the quarter.

Many market participants said Brexit fears are fading in the stock market for now, as investors see no immediate threat to the U.S. economy.

John Canally of LPL Financial said Brexit could be a problem for the market again if it shows up as having had an impact on any U.S. data, or if it starts becoming the excuse used by companies when they announce earnings starting in July.

Canally, economist and market strategist, said the market could be subject to its second quarter normal seasonality where August and September are choppy months.

"We had a really awful first quarter. This second quarter has been mostly range bound," he said. "I think people are going to be setting up for the earnings season. I think people who missed the energy rally will be buying energy. It's been one of the best performers of the quarter."

The S&P energy sector is the best-performing major sector, up 9.8 percent for the quarter, about double the next-best performer, health care.

"The oil glut has gone away. We've had declining oil production in the lower 48 states and that's the biggest difference in the markets today. Oil is becoming balanced," said Canally.

Oil did help lift stocks Wednesday, as energy gained 2 percent, moving higher with oil prices.

On the economic calendar Thursday, there are weekly jobless claims at 8:30 a.m. EDT and Chicago PMI at 9:45 a.m. EDT.