US Stocks Market Sinks as Bank Shares Plunge
The the sale of troubled First Republic Bank to JP Morgan Case was not enough to allay investors fears.
On Monday, I reported that the Federal Deposit Insurance Corporation had auctioned off the troubled First Republic Bank, one of the three regional banks that collapsed in March’s banking crisis.
Apparently, the sale to JP Morgan Case was insufficient to allay investors’ fears, and bank shares plunged, causing the stock market to sink 300 points.
Stocks tumbled on Tuesday as traders’ fears around contagion in the regional banking sector returned ahead of the Federal Reserve’s rate decision.
The Dow Jones Industrial Average fell 367.17 points, or 1.08%, to end at 33,684.53. The S&P 500 slid 1.16% and closed at 4,119.58. The Nasdaq Composite dropped 1.08%, ending the session at 12,080.51. The three major averages fell for a second consecutive session.
Bank shares slid, with the SPDR S&P Regional Banking ETF dropping more than 6%. Traders questioned the stability of smaller regional financial institutions after the crisis that engulfed Wall Street in March and brought about the end of Silicon Valley Bank and First Republic Bank. Regional banks PacWest and Western Alliance declined 27% and 15%, respectively.
The hits to the regional banks were widespread.
Some of the sharpest drops came from smaller- and mid-sized banks, which have been under heavy scrutiny as the banking system shows cracks under the weight of much higher interest rates. PacWest Bancorp dropped 25.6%, Western Alliance Bancorp fell 17.3% and Zions Bancorp dropped 12.6%.
The KBW Bank Index, which tracks the performance of regional banks, fell as much as 7% on Tuesday. The index is down 28% this year.
Three of the four largest U.S. bank failures in history have come since March, and investors have been on the hunt for what could be next to topple or suffer a debilitating exodus by customers.
Regional bank stocks are plummeting today, as the banking crisis continues. $JPM is relatively strong.$JPM: -2%$PACW: -28%$WAL: -15%$MCB: -21%
Check out the report for their current valuation. pic.twitter.com/RWXUtbY4Hg
— BeardReports (@beardreports) May 2, 2023
If the Federal Reserve raises rates later this week, the market may take more of a hit.
Investors are also closely waiting for the outcome of the Fed meeting, expected to be announced Wednesday. The Fed is widely expected to raise rates by a quarter point. Investors’ main focus will be whether Fed Chair Jerome Powell gives any hints of what’s to come at the central bank’s June meeting.
Some market participants are placing bets that the central bank will maintain its hawkish tone and could signal a June hike. Others, like Morgan Stanley’s equity strategist Mike Wilson, expect the Fed to pause interest rate hikes and also refrain from rate cuts through the end of the year, resulting in the federal funds rate remaining at a steady level of just over 5% for the foreseeable future.
“Should the message delivered at this meeting lead to a re-pricing of bond market expectations for rate cuts in the second half of ’23 (i.e., rate cuts get priced out, leading to an implied path that’s more in line with our economists’ view for a pause), that could ultimately be a negative surprise for equities,” Wilson said in a Monday note.
The Fed right now …
The Fed is trapped. There are no good choices.
Soaring Inflation vs Banking Crisis with more banks failing. Which way should they go ? pic.twitter.com/esAegO32M5
— Wall Street Silver (@WallStreetSilv) April 30, 2023
Experts assure us that we are not experiencing another banking crisis.
Famed financier and healthcare expert Michael Milken doesn’t think the US is trapped in a banking crisis, but the turmoil does offer an important lesson for investors, management teams, and regulators.
“This is not the 1980s, it’s not the 1970s, it’s not the Great Financial Crisis,” Milken told Yahoo Finance Live at the 2023 Milken Institute Global Conference (video above). “But it’s a lesson again that we need to match those that buy long-term assets with those that have long-term liabilities like pension funds, insurance companies. And that our financial institutions cannot run a mismatched book of short-term liabilities and long-term assets.”
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Comments
Maybe the Fed has to improve its supervision methods for regional banks. Good supervision would have caught this before it got out of hand. In particular, the Fed may want to bring back the stress tests that were imposed after the 2008 banking crisis.
Another option is let these bankers fail and their management, directors and yes their stockholders along with those who put funds into a single bank in amounts above the FDIC guarantee of $250K. Everyone with under $250K in a single bank won’t lose a dime of their deposits if we let them fail. Start holding management, directors financially liable (w/o bankruptcy protection) for the losses incurred by big depositors and if any $ is left after selling off all bankers shit send the remainder to other unsecured creditors then shareholders.
What got us here is bad risk management and magic thinking. The banks didn’t believe the Fed would raise interest rates. Heck they haven’t done so in any meaningful way for 15 years. They got complacent in another era of cheap money supply instead of being prudent. Interest rate risk, which is the thing hitting the banks, isn’t some esoteric never before seen thing.
Truly free market capitalism has lots of potential pain to go along with potential gain. The potential pain forces discipline and prudence by a Darwinian process. When we intervene to stop the pain we also stop the ability of the markets themselves to provide discipline. That means the discipline comes from outside the market aka more govt interference more politely known as regulation. When govt is calling the shots they begin to pick winners and losers and reward friends while punishing enemies. I prefer truly free markets.
It isn’t really a matter of “supervision”. When you keep interest rates at zero for more than a decade and then raise to 5%, there are going to be casualties. Massive casualties.
What can one expect when the current administration continues to give away money like it’s candy, and our House and Senate refuse to curb spending.
The last I heard, large amounts of money chasing few goods devalues the currency. Opening the printing presses to the tune of $31 Trillion of national debt tells me there is a spending problem.
The problem with your $250K idea right now, instead of a few years ago, is that everyone with over that amount in regional banks would pull it out = a run on those banks. That is why other regional bank stocks were down a lot today.
The Prime Rate is now 8%. That is far more than enough to do all that is necessary with rates to deal with an inflation which is more a fiscal issue (vast Federal overspending with borrowed money) than a monetary issue. In other words, more on rates will do little further on inflation, but hurt the economy. They should not raise rates further and temporarily eliminate the $250K FDIC limit, to stop bank runs.
That was meant to be in response to Common Chief.
So no limits on deposit insurance? $250K of govt guarantee isn’t enough? Deposits are an unsecured loan to the bank. That unsecured loan is callable at any time.
Would you seek to prevent depositors from moving their funds as they see fit? Anything less won’t stop them from a ‘run’.
Obamacares, ESG, DIEversity/labor arbitrage, CAIR, Green/environmental arbitrage, World War Springs without borders, shared responsibility, progressive prices, masks/jabs/planned parent/hood, etc.
Another large regional bank, KeyBank (KEY) is also tanking. It’s craven management allows business decisions to center around DEI and climate change considerations. More wokist malfeasance is helping drive the stock downhill. Where do they find people so weak and insulated from reality?
“”Where do they find people so weak and insulated from reality?””
In virtually every corporation and university in the country. We’re the minority.
The banks are doing exactly what Congress and The Fed demanded they do after the last banking crisis. Replacing risky holdings like credit default swaps and mortgage bundles with long term, safe government bonds. Now the Dems and Brandon have destroyed the economy to the extent that those are losing propositions in an interest rate hike environment.
Inflation destroys everything in it’s path. That the Elites seemed to not understand that dumping Trillions of dollars into the economy and printing money at an endless pace would lead to this is rather disconcerting. Of greater concern than the short term failure of several banks is the world moving away from the US Dollar as a reserve currency. This will have effects few in government promoting policies that have caused inflation in the first place seem to understand.
Take some money out and have it in your safe and use some to buy hard assets.
Of course they understand. They aren’t stupid people. They are evil people who are intentionally doing harm to other people.
Inflation is done purposefully to squash most of the middle class into the lower class.
I wouldn’t wait to buy the hard assets, I’d buy them now before the currency devalues further
It seems that the Dow was clumsy, the S&P had conditions to blame, and the Nasdaq was quite deliberate as far as share price decreases go.
Stolen elections have consequences, we’ve just begun to pay
You made me snort potato chip crumbs.
That was so funny — possibly worth it.