It has been a pretty bumpy few weeks on the Street.
Three US banks failed in March: Silvergate Capital, Silicon Valley Bank and Signature Bank. The contagion spread to other smaller regional banks in the U.S. For example First Republic Bank (FRC) shares are down 81% in the last two weeks.
Those domestic worries then spread to global banks, with Swiss bank Credit Suisse Group (CS) and German bank Deutsche Bank AG (DB) shares crashing over concerns about their solvency.
All this uncertainty triggered a strong response from US and international policy makers. Here are some more details from Bloomberg.
Market observers are on alert to find out just how much extra funding the Federal Reserve’s new bank backstop program will ultimately add into the system, with analysts at JPMorgan Chase & Co. positing that it could inject anywhere up to $2 trillion in liquidity.
The largest US banks also moved to support the US banking system. US banks created a rescue fund of $30 billion to support First Republic Bank and other smaller banks that need more liquidity.
Despite all of the uncertainty, stocks are actually holding up relatively well. The S&P 500 (SPY) was up 2% on the week and is still up 1.5% on the year. The tech-heavy NASDAQ 100 (QQQ) was up 6% on the week and is up 13% on the year. Take a look at the 5-day chart below on the S&P 500 and NASDAQ.
*chart from tradingview.com
There’s no question this banking stress is creating speed bumps for the economy and stock market. However, the small gain for stocks this week is an important signal that investors are feeling confident that the situation will be handled and things will return to ‘normal’ sooner than later.
What Should We Expect Moving Forward?
This is a live situation and things are evolving quickly. However let me share some quick thoughts.
1.) I am expecting volatility to remain elevated in the short run.
2.) After that I am expecting things to settle down in the next few weeks.
3.) I don’t think this is going to be another financial crisis like 2008.
4.) I still believe stocks have a good chance of closing higher this year.
5.) If things settle down I view it as an opportunity to deploy more cash.
Once again, this situation is dynamic, but for the time being stocks are signaling that investors are confident that the banking system is getting the support it needs to weather this storm.
That’s a quick update on the week. I’ll be back with another update next week – have a great day!
Disclaimer: This is not investment advice. This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.
