At the end of last week’s issue, I told everyone to buckle up for the boom. I didn’t expect any of the Global Systemically Important Banks (G-SIBs) to end up on the chopping block. And Friday is a rare market event known for wild price swings. So brace yourself! Let’s see what this means for the S&P 500 (SPY) in the coming days….
(Enjoy this updated version of my weekly commentary originally published March 16e2023 in the POWR Shares Under $10 Newsletter).
I’m not going to lie, I’m still a little tense about everything happening in the stock market (SPY).
As I just mentioned, another major bank – Credit Suisse (CS), one of the 30 Global Systemically Important Banks (G-SIBs) – fell more than 20% after revealing in a report that it had “material weaknesses” had identified. in financial reporting audits and the largest lender said he could no longer help.
Fortunately, the bank was able to bolster liquidity and restore confidence by borrowing $54 billion from the Swiss central bank.
San Francisco lender First Republic Bank fell 62% on Monday and is now the subject of a $30 billion bailout of 11 banks.
There has been a lot of unrest around this new ‘banking crisis’. It has even influenced the way I look at stocks. Before this week, I’ve never looked at which banking institutions finance a company from… but it now feels like an important part of the analysis!
Unfortunately, I have not been able to easily identify where a particular company bank.
But it turned out, for example, that Roku (ROKU) held about a quarter of its cash — nearly half a billion in uninsured deposits — with Silicon Valley Bank… and Roku is a highly traded company. We’re not just talking about small OTC companies.
And because everything related to these banking crises is currently in flux, it is still not clear what will become a major problem and what will not.
Then there is the question of how the Federal Reserve will balance banking sector instability with its battle against inflation.
This week’s CPI data puts inflation at 6%, which is still well above the Fed’s target of 2%. For the past year plus, the Fed has used rate hikes as its weapon of choice to curb inflation.
But rising interest rates are the culprit behind the sudden collapse of the SVB and the spotlight currently shining on the banking sector.
As of this weekend, fighting inflation is no longer the Fed’s sole focus… it must also consider overall financial stability and credit conditions.
A pause in rate hikes would be best to help stabilize banks…but as February’s CPI and PPI reports reminded us this week, inflation isn’t dying out any time soon, meaning there are good reasons for the to keep raising interest rates.
What to do what to do…
Personally, I’m glad I’m not in his shoes.
The next Federal Reserve meeting is scheduled for March 21-22, which will likely be another major market move.
A pause would be good for the banks, but bad for the fight against inflation.
An increase of 50 basis points would be good for the fight against inflation, but bad for the banks.
I expect they’ll split the difference and we’ll end up with a 25 basis point increase, which wouldn’t add much to inflation and put banks in an even tighter position. So kind of the worst of both worlds.
Today is also an important day for the markets. It’s “quadruple witchcraft,” which happens when stock futures and options contracts linked to individual stocks and indices all expire on the same day.
Some of these contracts expire in the morning, others expire in the afternoon. It usually happens about four times a year, and it can coincide with wild swings in the current market as traders scramble to cut their losses or collect their profits early.
This quarter we have about $2.8 trillion in contracts expiring, so we could make some very big moves.
The market suffered some setbacks this week. Small-cap stocks, which account for many stocks under $10, took a particularly hard hit.
And yet our trade triggers will cause us to exit two of our positions with a profit in our pocket. That’s not bad in a difficult market environment.
Plus, keep an eye on your inbox later this morning for new names to replace the companies we’re deleting.
What to do now?
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All the best!
Chief Growth Strategist, StockNews
Editor, POWR Newsletter Stocks Under $10
SPY shares traded Friday morning at $389.57 per share, down $6.54 (-1.65%). Year-to-date, SPY has gained 1.87% versus a percentage increase of the benchmark S&P 500 index over the same period.
About the author: Meredith Margrave
Meredith Margrave has been a well-known financial expert and market commentator for the past two decades. She is currently the editor of the POWR growth And POWR shares under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.
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