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We spend our second Friday in a row unexpectedly fretting about the banking industry, in light of failures within the radius of Silicon Valley — and Silicon Valley Bank itself — and what we might expect as further fallout from this episode. For instance, even though yesterday gave investors some hope that First Republic Bank would be saved by a group of other banks offering tens of billions in deposits, the San Francisco bank sold off -20% in the late session yesterday, where it remains this morning.
At this point, virtually all stocks in Finance are now selling off by at least 1-5%. Even though it remains true that many of SVB’s issues were anomalous — more than 90% of its deposits were uninsured, and focused into the challenged, speculative sub-group of tech startups — evidence of destabilization across the industry is leading analysts more clearly to the realization we may have found something that “broke” as a result of the Fed tightening interest rates and draining its balance sheet by its most aggressive levels in more than 40 years.
Thus, as we’ve discussed here over the past week, the Fed’s decision next Wednesday on whether to hold interest rates steady at 4.50-4.75% or raise them 25 basis points (bps) is, for the first time in several months, no longer taking up all the air in the room. Ultimately, compared to what we may be facing, regarding a possible harder landing of the economy than thought just a week or so ago (and a more probable recession of some stripe), a quarter-point hike or not isn’t going to be something likely to tip any scales.
Will we see any forced mergers between these destabilized financial institutions and solvent banks over the weekend? Most of us can still remember how this all went in the financial meltdown of ’08-’09 — even though there are no analysts saying this time around will be anywhere near as bad — where the “too big to fail” banks grew even bigger as they absorbed many of those failing institutions, and the likelihood has grown that the same “shotgun wedding” approach might be in play here.
So the flight from Financials — and other pending-recession plays like selling Energy stocks — is a real even this morning, but the beneficiaries have been sectors like Tech and crypto. The Nasdaq is +5% week to date, with companies like Advanced Micro Devices (AMD - Free Report) +17% and Microsoft (MSFT - Free Report) and NVIDIA (NVDA - Free Report) +12%. Pre-market futures are all negative to finish the trading week, but we’re currently looking for a positive week in all major indices aside from the small-cap Russell 2000.
We also wish everyone a Happy (and safe!) St. Patrick’s Day today. “Sure’n Begorrah!”
Image: Shutterstock
Reckoning for Bank Stocks on St. Patrick's Day
Friday, March 17th, 2023
We spend our second Friday in a row unexpectedly fretting about the banking industry, in light of failures within the radius of Silicon Valley — and Silicon Valley Bank itself — and what we might expect as further fallout from this episode. For instance, even though yesterday gave investors some hope that First Republic Bank would be saved by a group of other banks offering tens of billions in deposits, the San Francisco bank sold off -20% in the late session yesterday, where it remains this morning.
At this point, virtually all stocks in Finance are now selling off by at least 1-5%. Even though it remains true that many of SVB’s issues were anomalous — more than 90% of its deposits were uninsured, and focused into the challenged, speculative sub-group of tech startups — evidence of destabilization across the industry is leading analysts more clearly to the realization we may have found something that “broke” as a result of the Fed tightening interest rates and draining its balance sheet by its most aggressive levels in more than 40 years.
Thus, as we’ve discussed here over the past week, the Fed’s decision next Wednesday on whether to hold interest rates steady at 4.50-4.75% or raise them 25 basis points (bps) is, for the first time in several months, no longer taking up all the air in the room. Ultimately, compared to what we may be facing, regarding a possible harder landing of the economy than thought just a week or so ago (and a more probable recession of some stripe), a quarter-point hike or not isn’t going to be something likely to tip any scales.
Will we see any forced mergers between these destabilized financial institutions and solvent banks over the weekend? Most of us can still remember how this all went in the financial meltdown of ’08-’09 — even though there are no analysts saying this time around will be anywhere near as bad — where the “too big to fail” banks grew even bigger as they absorbed many of those failing institutions, and the likelihood has grown that the same “shotgun wedding” approach might be in play here.
So the flight from Financials — and other pending-recession plays like selling Energy stocks — is a real even this morning, but the beneficiaries have been sectors like Tech and crypto. The Nasdaq is +5% week to date, with companies like Advanced Micro Devices (AMD - Free Report) +17% and Microsoft (MSFT - Free Report) and NVIDIA (NVDA - Free Report) +12%. Pre-market futures are all negative to finish the trading week, but we’re currently looking for a positive week in all major indices aside from the small-cap Russell 2000.
We also wish everyone a Happy (and safe!) St. Patrick’s Day today. “Sure’n Begorrah!”
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