Stock Market Today: March 20th - 24th, 2023

Welcome StonkForums to the trading week of March 20th!

This past week saw the following moves in the S&P:


S&P Sectors End of Week:


Major Indices End of Week:



Major Futures Markets on Friday:


Economic Calendar for the Week Ahead:


What to Watch in the Week Ahead:

(N/A.)

 

Bonds, Bitcoin, & Bullion Soar As Global Bailouts Fail To Stem Bank-Runs
SVB, CS, SNB (Saudis), SNB (Swiss), BTFP, ECB, & A Deposit-Reacharound...



Credit Suisse counterparty risk exploded and is completely ignoring the SNB bailout...



Source: Bloomberg

Still not worried, then how's this - USA sovereign risk just hit a new record high...



Source: Bloomberg

Simply put: Shit's breaking ...and here is every policymaker everywhere all at once...


...and where do we end up.

US regional banks are down hard-er (as Fed transparency of the massive borrowings last week from their bailout facilities definitely spooked more than a few US investors)...



Source: Bloomberg

European bank stocks collapsed, erasing YTD gains and banking sector credit risk soared to 5-month highs...



Source: Bloomberg

And CS stock price continues to tank to record-er lows...



And First Republic Bank tumbled back down to recent lows, despite billions in handouts from the big banks...



All things considered - the committee to save the world has failed for now as safe-haven flows flooded bonds, bitcoin, and bullion...



A mixed picture for stocks on the week withe Nasdaq the big outperformer while Small Caps were weakest. The Dow ended the week in red and the S&P slipped lower today but ended green...



That huge outperformance of mega-cap tech over small caps is practically unprecedented. As Goldman notes,

1/ over the last 10 sessions, the gs basket of mega cap tech stocks is up 6.2%

2/ over the last 10 sessions, the russell 2000 is down 9.8%

3/ this 16% spread is the second highest of all time (one data point in Mar2020)...



...there has been a clear shift to tech stocks, and an even more clear shift to the ultra high market capitalization names

The S&P was unable to hold above its 200DMA...



Energy and Financials were the week's ugliest horses in the glue factory while Technology (and Utilities!?) were the biggest gainers...



Source: Bloomberg

Office REITS were monkeyhammered this week...



Source: Bloomberg

VIX has broken up into a new higher-vol regime for now...



All Treasury yields were lower on the week with the short-end massively outperforming...



Source: Bloomberg

The last 7 days in 2Y UST yields (these are just the close-to-close moves) have been unbelievable (and ended below 4.00%): -20bps, -28bps, -61bps, +27bps, -36bps, +27bps, and -30bps



Source: Bloomberg

The UST yield curve steepened dramatically this week, bringing the case for recession even more imminent...



Source: Bloomberg

European sovereign yields plunged this week too...



Source: Bloomberg

The dollar ended the week lower, after a roller-coaster midweek...



Source: Bloomberg

Crypto had a big week as QE is back on the table with Bitcoin dramatically outperforming...



Source: Bloomberg

Bitcoin topped $27,000 today for the first time since June 2022...



Source: Bloomberg

Gold soared this week, back above $1950, to its highest since April 2022...



Silver outperformed Gold on the week but crude, copper, and NatGas all tumbled...



Source: Bloomberg

WTI puked to a $65 handle - its lowest since Jan 2022...



Finally, rate-change expectations have swung violently dovishly and hawkishly all week, but all dramatically more dovish than before SVB's failure...



Source: Bloomberg

What difference a week makes...



Source: Bloomberg

The terminal rate now appears to be in May (just one rate-hike) and by year-end, rates are expected to be 76bps lower (i.e. more than 4x25bps rate-cuts after May).

The market wants moar free money...



It would appear, if Powell is watching the market, that he is done for now (and that explains why bitcoin and gold are soaring).

 

Nasdaq 100 Steadily Outperforms
Fri, Mar 17, 2023

Everywhere you look these days, you can find crazy things going on with the market. A case in point is the Nasdaq 100's performance relative to the performance of the S&P 500. In early afternoon trading, the Nasdaq 100 is on pace for its 12th straight day of outperforming the S&P 500. That's a streak that has only been exceeded two other times (July 2005 and July 2017) since 1996, and there have only been a total of six streaks where the Nasdaq 100 outperformed the S&P 500 for ten or more trading days.



During this 12-day span of outperformance for the Nasdaq 100, it has rallied 4.7% compared to a decline of 0.73% for the S&P 500 for a gap of 5.4%. That may sound like a pretty wide spread, but it has hardly been out of the norm in the post-COVID period. As shown in the chart below, there have been several times over the last three years where the 12-day performance spread has been as high or higher than it is now. During the post-Financial Crisis period from 2010 up until the end of 2019, the spread oscillated in a relatively tight range. Before that, though, the performance spread between the two indices was also routinely as large as it is now, especially in the late 1990s and early 2000s when it dwarfed the current range. While the steady pace of days where the Nasdaq 100 has outperformed the S&P 500 has been unusual, the performance gap between the two has been anything but.



Claims Come in Strong
Thu, Mar 16, 2023

After disrupting the trend of lower readings last week, this week's reading on initial jobless claims returned to improvements as the print totaled 192K. That means eight of the last nine weeks have seen claims come in below 200K as the indicator continues to show a historically healthy labor market.



Before seasonal adjustment, claims are sitting at 217.4K. That marked a slight decline from 238.8K the previous week and little change versus the comparable week last year. From this point of the year, based on seasonal patterns claims are likely to continue falling through the spring albeit at a slower rate than what has been observed over the past few months.



Not only were initial claims strong, but so too were continuing claims. The seasonally adjusted number fell back into the 1.6 million range after topping 1.7 million (the highest level since mid-December) last week. Like initial claims, continuing claims remain at healthy levels consistent with the few years prior to the pandemic.



Bulls Back Below 20%
Thu, Mar 16, 2023

The fallout from bank failures over the past week has put a major dent in investor sentiment. Since the week of February 23rd, optimism has been muted with less than a quarter of respondents to the weekly AAII sentiment survey having reported as bullish. That includes a new low of 19.2% set this week. That is the least optimistic reading on sentiment since September of last year.



The drop in bullishness was met with a corresponding jump in bearish sentiment. That reading climbed from 41.7% up to 48.4%, the highest level since the week of December 22nd. While close to half of respondents are reporting as bearish, that remains well below the much higher readings that eclipsed 60% last year.



Last month saw the end to a record streak in which bearish sentiment outweighed bullish sentiment. However, the bull bear spread has now been negative for four weeks in a row once again. In fact, this week was the most negative reading in the spread since late December.



Factoring in other sentiment readings like the Investors Intelligence survey and the NAAIM Exposure Index—both of which similarly saw sentiment pivot toward more bearish tones this week—our sentiment composite is once again below -1, meaning the average sentiment indicator is reading extremely bearish sentiment. While prior to 2022 such depressed levels of sentiment were not commonplace, it has been the norm over the past year or so.



Carson House Views Spotlight: Financials
Posted on March 15, 2023

Due to a stable economy, higher interest rates, and low investor expectations that have become even lower, Carson Investment Research is upgrading the financial sector to overweight. We feel that the recent volatility ignited by a handful of regional banks is probably not over. However, we feel that investors searching for the next “big short” could come up empty-handed in this area as crises tend not to repeat in the same form and fashion. Today’s banks are much different from those during the Global Financial Crisis some 15 years ago. In fact, we would argue that the top firms in this sector are probably more beneficiaries of this current stress rather than a victim of it.

Carson’s House View is our transparent way of communicating to advisors the consensus of our Research Team’s perspective. These underpin our investment recommendations and are conveyed through our pro-sourced House Views models. Our partners who prefer to co-source model management can express these views with ETFs available on our curated platform.

The top bank components are “too strong to fail.”
While the Global Financial Crisis coined the term “too big to fail,” this latest stress may show that the major financial components are “too strong to fail.” According to the Financial Select Sector SPDR fund (XLF) that seeks to replicate the financial sector of the S&P 500, banks represent about 31% of ETF. Smaller regional banks are only 7.5%, while the top four major banks account for ~24%. These top four face more stringent capital regulations and are subjected to rigorous stress testing that is passed without issue. Also, the top banks have consistently been gaining share for the past five years, which may now accelerate due to the recent failures of several regional players.



The remaining subsectors look to be fairly insulated from the recent stresses that regional banks are facing. Sure, there are a few areas within insurance and capital markets that may have some duration mismatches and unrealized losses, but that doesn’t become problematic unless there are liquidity issues. Of course, this could change, but at this moment, the remaining subsectors of the XLF look to be beneficiaries of a healthy economy and interest rates higher for longer.



Already low investor expectations have become even lower for financials
We’re well aware that our overweight rating on financials is a contrarian call, even before this recent flare-up. However, therein lies the opportunity. We feel that many investors are expecting a repeat of the Global Financial Crisis. With a healthy economy, beefed-up capital requirements, and a higher for longer rate environment, we don’t see the same parallels. Currently, the Financial Select SPDR ETF (XLF) trades at a forward P/E multiple of 11.5x. This is down from ~15x at the beginning of the year and nearing the pandemic-lows of 9.5x when the economy was shutting down for an unknown amount of time. If we’re right that this isn’t GFC part II, we believe that there is a material upside from current levels.



We also point out that the financial sector has been a major laggard in the S&P 500 since 2008. This made sense, considering that earning power of these firms was constrained by regulatory and capital restrictions coupled with a repressed interest rate environment. Instead, these conditions were conducive for technology firms, which have been the dominant outperformers over recent years. As Bob Dylan sang in 1964, we think “The Times They Are a-Changin’.”



We expect higher rates for longer which will benefit the financial sector
Carson Investment Research expects the Fed to hold rates higher for longer to combat persistent inflation. Most components of the financial sector businesses tend to benefit from rising interest rates. Banks earn attractive spreads on lending because the rates paid on loans are rising faster than the rates paid for deposits. Insurers earn higher yields on their float (the money collected for premiums upfront, which are used to pay claims later). Even when the rate hikes stop, the sector should generate attractive returns going forward.

The economy is healthy
The financial sector will continue benefitting from higher interest rates as long as the economy remains healthy, which we believe it will. Economic growth generates more business for the sector and requires additional borrowing. Importantly, the rate of late payments and defaults is within historical standards and should remain stable. The money banks set aside to cover bad loans increased over the past year as the world normalized. While this spooked some investors, it’s important to consider the unusual circumstances preceding the increase. Stimulus payments, eviction moratoriums, and student loan forbearance led to unusually low levels of missed payments. Further, rapidly rising home and auto prices enabled banks to sell defaulted assets at a profit! The industry is returning to business as usual – that’s not a bad thing.

Bottom line
We think the outlook for the financial sector is attractive, and we’ve upgraded it to overweight. These companies will benefit from rising interest rates and a stable economy. Valuations are attractive, and the outlook calls for double-digit earnings growth. Partners interested in increasing exposure to this sector can do so using the Financial Select Sector SPDR® (XLF), which is available on our curated platform.

The XLF yield, share price, and/or rate of return fluctuate and, when sold or redeemed, investors may receive more or less than your original investment.

Fall of the Empire Fed
Wed, Mar 15, 2023

Among the bad news this morning was disappointing economic data in the form of the New York Fed's Empire Manufacturing report. The report was expected to remain in contraction falling to -7.9 versus a reading of -5.8 last month. Instead, the index plummeted to a much weaker reading of -24.6. Although that is not a new low with even weaker readings as recently as January and last August, the report indicated a significant deterioration in the region's manufacturing sector, and whereas weather in January was an easy scapegoat for the weakness, that's not the case for the March report.



Given the large drop in the headline number, breath was equally bad with many other significant declines. Like the headline number's 5th percentile reading and month-over-month decline, New Orders and Shipments both saw double-digit declines into bottom decile readings. In the case of Shipments, that low reading comes after an expansionary reading last month. Inventories was the only other current conditions index to move from expansion to contraction leaving Prices Paid and Prices Received as the last expansionary categories.



As mentioned above, demand appears weak as New Orders and Shipments are the two most depressed categories from a historical perspective with each index coming in the bottom 3% of all months since the start of the survey in the early 2000s. Six-month expectations are equally low. Unfilled Orders were one of two categories to see a higher reading month over month with the 2.5 point increase much smaller than the move in expectations. Unfilled Orders expectations surged by 12.1 points, ranking in the 95th percentile of all monthly moves on record. That would indicate the region's firms expect unfilled orders to rise at a rapid pace in the months ahead, likely as a result of weakened sales. That does not mean the area's firms are expecting inventory build-ups, though. Inventory expectations saw a modest 1.4-point increase month over month in March, but that remains one of the lower readings of the past decade.



The only other current conditions index to move higher month over month was delivery times. Even though it moved higher, the index continues to indicate lead times are rapidly improving and expectations are calling for those improvements to continue.



Next to the dampened demand picture, employment metrics were perhaps the next most jarringly negative. Hiring is falling precipitously with the Number of Employees index hitting a new cycle low of -10.1. Average Workweek also is reaching new lows. At -18.5 it has only been as low during the spring of 2020 and during 2008 and 2009.



Ides of March Inflection Point: Beware!

Markets are fixated on fallout and contagion from regional bank failures on the eve of the Ides of March. It may have been a dire warning for a triumphant Julius Caesar. But, traders should beware that March has evolved into a market inflection point in recent years.

In the old days March used to come in like a bull and out like a bear, but nowadays crosscurrents at the end of the first quarter have turned March into an inflection point in the market where short-term trends often change course.

March market trend reversals from extremes are not unusual as we experienced bear market bottoms or notable upturns in 1980, 2003, 2009, 2016 and 2020 as well at the Dotcom top in 2000. Further Fed action to shore up the banking sector as well as limited or no more failures and a more dovish tone next weeks FOMC statement, comments and pressers would likely rally stocks.

Headline risk from Ukraine, China and the Mideast on top of fears that sticky inflation will force the Fed to raise higher and longer, pushing us into recession cut the S&P’s gains off the October lows in half and brought the YTD gain to near zero at yesterday’s close with a drop of 7.6% from the February 2 high.

Following the rapid rally of 16.9% October low this correction is not shocking. While our annual forecast was and still is bullish we warned back in December to expect a “Choppy Start, Fed Pause Q1, Pre-Election Bull Emerges.” Now that the steep 450-basis-point rate increase in less than a year has begun to pinch the regional banking system the Fed will likely move to pause. CME’s FedWatch Tool is currently showing an 80% probability of a 25 BPS hike.

We hit the 50% Fibonacci replacement yesterday on a closing basis and the 61.8% retracement on an intraday basis today. S&P also seems to be finding support at the old downtrend line that served as resistance throughout 2022. VIX also tends to make a seasonal high in March.



Where Goes the Fed From Here: Inflation vs. Financial Stability?
Posted on March 14, 2023

The Federal Reserve has two mandates – “pursuing the economic goals of maximum employment and price stability.” Over the past year, the Fed has been leaning on the side of the price stability mandate, arguing that the labor market is too tight, i.e., beyond maximum employment. Fed Chair Jerome Powell’s mantra has been:

“We must keep at it until the job is done.”

A play off the title of Paul Volcker’s 2018 autobiography, “Keeping at it.” Volcker is the Fed Chair renowned for slaying the demon of inflation in the early 1980s.

Rich Clarida, Powell’s second in command at the Fed from 2018—2022, said:

“Until inflation comes down a lot, the Fed is really a single mandate central bank.”

That works fine until there is a looming financial crisis, which the American economy was probably staring at over the past few days after the collapse of Silicon Valley Bank (SVB). My colleague Ryan Detrick wrote a very useful piece on the ins and outs of what happened there.

The Fed’s aggressive rate hikes broke SVB
There’s a saying that when the Fed hits the brakes, somebody goes through the windshield. You just never know who it’s going to be.

As Ryan wrote, a big reason for this crisis was the Fed’s aggressive interest rate hikes, where they raised rates from zero a year ago to more than 4.5% by January. Unfortunately, the speed and size of these hikes resulted in losses for SVB (also due to poor risk management on the bank’s part).

The thing is, the Fed has a natural role in maintaining financial stability. At the same time, there is no clear definition for what constitutes a threshold for financial instability, it’s typically not hard to figure out when you’re staring down a crisis, which is what the Fed was facing in September 2008, March 2020, and this past weekend. Thanks to lessons learned in 2008, the Fed acted decisively in 2020 and once again last Sunday – in terms of size, scope, and swiftness of their actions – to prevent a major economic crisis.

Arguably, their actions were successful in 2020, and while the situation is still fluid, they seem to have averted a financial contagion this time around.

The long and short of it is that the Fed’s inflation mandate ran headlong into its crucial role in maintaining financial stability.

Markets are betting that the focus will shift to financial stability
This kind of seems obvious, given what happened over the last few days. And investors have completely flipped their expectations for where they think monetary policy goes next.

Powell was quite hawkish in front of Congress last week – when he suggested they’re very worried about inflation and could potentially raise interest rates by 0.5% at their March meeting. At the time, we wrote about how it looked like the Fed was panicking. Anyway, investors took Powell seriously enough – pricing in a 0.5% increase in March, a terminal federal funds rate of about 5.6% by the end of this year, and no rate cuts.

Four days of crisis really changed things. Markets are now expecting no rate hike in March and expect the Fed to start cutting rates this year. The terminal rate is now expected to be about 4.8%, which is where we’re at right now. In other words, markets believe the Fed is done with its rate hikes.

And looking ahead to the end of 2023, markets now expect rates to be 1.1%-points lower than what they expected less than a week ago.



This is an extraordinary shift in expectations. And it manifested in an epic move in 2-year treasury yields on Monday – yields fell from 4.59% to 3.98%! That is an 8-standard deviation move, something you should see only in millions of years. In theory.

The last time we saw a move like that was in the early 1980s, though back then, yields were north of 10%. Yields are less than half that today, and so the -61 basis point move we just saw in 2-year yields is truly historic.

But the Fed still has an inflation problem
The latest inflation data indicates that inflation remains elevated. Headline inflation rose 0.4% in February, while core inflation (which strips out energy and food) rose by 0.5%, which was more than expected. Monthly changes can be volatile, so it helps to look at a 3-month average. And that’s not a source of comfort either.

Headline inflation is running at an annualized pace of 4.1% over the past three months, while core is running at 5.2%. These are well-off peak levels that were closer to the 10% level. But it’s much higher than the Fed’s target of 2%.



What we believe will happen next
We believe the Fed is unlikely to surprise markets. More so when there are financial stability concerns. So, it’s very likely the Fed does not raise rates at their March meeting. Unless we get another leak to the Wall Street Journal.

In any case, we don’t believe the Fed’s done with rate hikes. Especially when inflation is still too high for their liking.

They’ll probably get back on the rate hike path this summer, perhaps in June, if not even earlier in May. But they may not go as far as we thought prior to last week, with rates topping out in the 5-5.25% range (it’s currently at 4.5-4.75%).

Crucially, the delay may also buy time for inflation data to fall off by itself and prevent a Fed panic. We know that market rents are decelerating, and that should start feeding into the official data soon. There’s also strong evidence that wage growth is decelerating, which means price pressures in the “core services ex housing” category that the Fed has focused on recently, should also ease.

Nothing SHY About This
Tue, Mar 14, 2023

shy /SHī/ - adjective 1. being reserved or having or showing nervousness or timidity in the company of other people.

When one thinks about short-term US Treasuries and their traditional day-to-day price action, shy is a pretty good description. Traditionally, short-term Treasuries have not been the place an investor who was looking for action would go to look. That's what tech stocks are for! As the Fed has embarked on what has been the most rapid pace of rate hikes in at least 40 years, though, no type of financial asset, including short-term Treasuries, has been spared. The chart below shows the iShares 1-3 Year Treasury Bond ETF (with the aptly named ticker SHY) over the last year. A year ago, the ETF was trading just above $84, and last week it was down near $80 before rebounding over the past few days to a high of $82.02 yesterday. A one-year range of just under 5% is hardly volatile, but from the perspective of a short-term Treasury investor, it's a gigantic move.



The last week has been a period of historic volatility for US Treasuries - at least relative to the last 20 years. The chart below shows the daily percentage changes in SHY since its inception in July 2002. Yesterday, the ETF had its largest-ever one-day gain at just under 1% (0.997%). You can also see from the chart that ever since the FOMC started hiking rates in early 2022, the magnitude of SHY's average daily moves has rapidly expanded.



Monday's (3/13) nearly 1% rally in SHY also marked a milestone for the ETF in that it experienced a one-day gain or loss of at least 0.25% for three consecutive trading days. That tied the longest-ever streak of 0.25% daily moves from back in September 2008 just after Lehman declared bankruptcy. With SHY down 0.34% on the day in late trading Tuesday, it is now on pace for its 4th straight day of 0.25% daily moves. Yup, you read that correctly; volatility in short-term Treasuries is greater now than it was during the Financial crisis! When Powell said last Summer that fighting inflation would 'bring some pain', he wasn't kidding. As a result, SHY may want to consider changing its ticker to something more applicable. "BOLD" is available.



Some Good and Some Bad in Small Business Optimism
Tue, Mar 14, 2023

Early this morning, the NFIB released the results of its February survey of small business optimism. The headline index rose to 90.9 versus expectations of it remaining unchanged at 90.3. In spite of the bounce, small businesses continue to report some of the worst sentiment of the past decade with the February reading right back in line with the April 2020 low.



Diving deeper into the categories of the report, breadth was mixed. Of the ten inputs into the headline number, four were lower month over month, one was unchanged, and the other half were higher. For the most part, these indices also remain in the bottom decile of their historical readings.



In today's Morning Lineup, we highlighted how the report's labor metrics have been improving in each of the past four months on an aggregate basis. Plans to increase employment remain healthy in the 77th percentile while the percentage of respondents reporting job openings as hard to fill hit a new record high after rising by a near record 9 points month over month. Although openings were harder to fill, firms also took on more workers. With actual employment changes moving up to 4, it hit the highest level of the post-pandemic period. However, that did clash with hiring plans falling 2 points to match December for one of the lowest readings of the past few years. Likewise, plans to increase compensation are at the lower end of their recent range even while actual observed changes to compensation have improved in the past few months.



The same dynamic in which plans are headed in the opposite direction of actual changes can be observed with regards to capital expenditures. Capital expenditure plans were unchanged at 21 last month for the joint lowest reading since March 2021. Meanwhile, actual capital expenditures rose to 60, the highest since March 2020 and credit conditions have improved. Turning to inventories, satisfaction (meaning the net percent of firms reporting if inventories are too low versus too high) fell to the lowest since the spring of 2020. As a result, a net 7% of firms are reporting that they plan to decrease inventories in the coming months.



Finally, we would note that on net more firms are seeing lower rather than higher sales in spite of improvements to inflation metrics. The outlook for general business conditions has yet to see any improvement as few businesses report now is a good time to expand.



Most firms report now as a poor time to expand due to economic conditions at 36% of responses. The next most commonly credited reason is political climate followed by interest rates, which at 7% match the December reading for the highest since at least 2020.



What You Need to Know About Silicon Valley Bank
Posted on March 13, 2023

“A small spark can start a great fire” – Emmet Fox

A bank many of us had never heard of this time last week now has the entire financial spectrum on the brink of disaster. Or does it? Here are some things you need to know about Silicon Valley Bank.

The second-largest bank failure ever
Things were just fine this time a week ago, but it all came crumbling down in less than 48 hours for Silicon Valley Bank (SVB) and parent company SVB Financial (ticker symbol SIVB). After losing 60% on Thursday, in the end, the 16th largest bank as of the end of 2022 had vanished by the end of the week, with only the failure of Washington Mutual in 2008 larger.

This chart from Pranshu Maheshwari puts things in perspective.



What happened?
Founded in 1983, SVB announced on Wednesday they had sold $21 billion in assets to raise cash and were taking a $1.8 billion loss as a result, while also trying to raise capital as well. Due to dwindling deposits and losses in their holdings, they were forced to sell to shore up their books.

As a result, there was a classic run on the bank, as customers demanded their money back and in less than 48 hours, the 16th largest bank with $209 billion in total assets as of the end of 2022 was gone. In fact, it is estimated customers tried to withdraw $42 billion on Thursday alone, about a quarter of their overall deposits.

As a result of the flood of withdrawals, they had a negative cash balance of close to $1 billion and couldn’t cover their payments, so the FDIC took over on Friday morning.

Why did this happen to SVB?
This bank was quite unique in that they focused on technology and healthcare companies, along with venture capital and startups. Heck, their name says it all. They were heavily invested in Silicon Valley and vice versa.

In fact, they provided almost half of the financing to US venture-backed technology and healthcare companies. So, whereas traditional banks had various type of customers, SVB was quite lopsided in their type of customers. This worked great when tech and startups soared from 2015 until 2021, but that all changed in 2022.

The big issue was technology had been one of the harder hit areas due to the Fed increasing interest rates by historical amounts. So instead of depositing money in the bank, they were taking out more and more to cover the bills. Couple that with the fact SVB had enormous unrealized losses in their portfolios of mortgage bonds and treasury bonds, it was the perfect cocktail for potential disaster.

The Fed finally broke something
After increasing rates nearly 500 basis points, many think the Fed was simply hiking until something broke. Well, housing broke and now the big worry is the huge drop in bond prices could be breaking things for banks.

SVB for example took many of the deposits and bought long-term treasuries, with many purchased when the 10-year yield was at 1.5%. Given the huge drops in bond values, their portfolios have significant unrealized losses as a result, thus pressuring the whole house of cards. What is worrisome here is many banks are in similar situations, with huge unrealized bond portfolio losses.

The FDIC reported that at the end of 2022, the total unrealized losses in the industry was $620 billion, versus only $15 billion the year before. Should other banks be forced to liquidate those portfolios, this would lead to huge drops in book value.

Let’s get one thing clear though, this only becomes a problem should said bank need to sell assets at depressed prices. It is well known that banks have losses on their bond holdings, but the problem comes when they need to raise capital and sell like SVB had to do. That is when the sharks circle.

Don’t forget, the last time the Fed hiked rates aggressively like this was in 1994 and this led to Orange County going under in December 1994. Is this another Orange County moment?

This wasn’t your normal bank
The FDIC insures bank accounts up to $250,000, but the issue was most accounts at SVB had well over this important threshold. Reports showed the bank had more than $151 billion worth of deposits over the FDIC limit as of the end of 2022. In fact, only 12% of deposits were insured, well beneath the 55% you’ll find from the average commercial bank. Again, this showed that customers were likely to pull out their money quickly at the first sight of trouble, which is what they did to the tune of $42 billion last Thursday.



Risks were extremely high
A great report by Michael Cembalest of JP Morgan found that SIVB was in a league of its own with a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits. Bottom line: SIVB carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales.



Deposits were another red flag
Additionally, looking at SVB’s deposits you’ll find it looked nothing like your traditional bank, with nearly half of the deposits coming from technology companies.

Only 7% coming from the private bank looked normal, i.e. the usual retail deposits. The bottom line was their concentration to companies specifically in Silicon Valley helped them on the way up, but greatly hurt them on the way down.



It was good till it wasn’t
Sure, being a bank to technology, startups, and private equity wasn’t the place to be lately, but from 2015 to 2021 it was a great place to be. In fact, deposits grew from $61.7 billion at the end of 2019 and soared to nearly $190 billion by the end of 2021. Speaking of 2021, deposits exploded 86% that year alone.

All in all, that is a tripling of deposits in three years. Not bad. What did they do with most of those deposits? Remember, most went into U.S. Treasuries and other government debt securities—not the best place to be when interest rates rose, as we explained above.

But what goes up must come down. Deposits sank from close to $200 billion at the end of March 2022 to $173 billion at the end of last year and to $165 billion by the end of February. This wasn’t just SVB though, as prior to 2022 only 10 quarters saw deposit outflows from US banks over the past five decades. Now there’s been four quarters of outflows in a row. Still, the factors that helped SVB succeed, also expedited its downfall.

What are others saying?
Mike Mayo of Wells Fargo is one of the most respected banking analysts and he said the issue wasn’t one of deposits, but of the diversity of deposits. Given the majority of their customers were primarily venture-capital firms and they had been under pressure lately, this forced them to slow down on their deposits and burn through cash. This shouldn’t be an issue for larger banks though.

“To us, the larger the bank, the more diversified the funding,” Mayo writes. “To us, this is part of the test that the largest banks, i.e., the ones that caused the Global Financial Crisis, are today the more resilient portion of both the banking and financial systems.”

Mark Zandi, Moody’s chief economist said, “The system is as well-capitalized and liquid as it has ever been. The banks that are now in trouble are much too small to be a meaningful threat to the broader system.”

Lastly, David Trainer, CEO at investment research firm New Constructs said other banks’ financial health and diverse portfolios should help protect them. Yes, all banks are dealing with the loss of value in their bond portfolios, but this only becomes and issue if they actually have to sell those securities. In fact, most banks’ securities holdings are more diversified, much like their customer bases, reducing the chances of trouble.

The first domino to fall?
Although bank stocks and the financial industry in general had a historically bad week last week, it was worthwhile to note that credit markets remained calm last week. In fact, credit default swaps of large banks didn’t show any signs of stress, suggesting things are contained as of now. Additionally, the US Dollar weakened late in the week. Historically the US Dollar would find a bid under times of extreme stress. Junk bonds were also flat on Friday, quite the opposite of what you’d expect if things were spiraling out of control.



Who else is in trouble?
Earlier in the week, Silvergate Capital fell as they wound down operations and liquidated the bank. They were one of the largest lenders to crypto companies, an industry that has fallen on hard times lately.

Then on Sunday evening it was announced that Signature Bank was also taken over by the government as well. Similar to Silvergate Capital (but much larger), they had heavy exposure and loans to crypto companies.

So as of now, two banks went under due to exposure to crypto, while SVB isn’t a traditional bank as we already discussed. Regional banks in general have seen huge losses, but as of the time we are writing this, none of those have gone under.

Didn’t anyone see this coming?
Some did, but most didn’t is the fact of the matter. Moody’s and S&P both rated SVB Financial at Investment-Grade credit ratings before last week and most analysts had it at a buy or overweight. (Thanks to Howard Lindzon for the table below).




In fact, SVB was named one of the Best Banks in 2022 by Forbes, something they made five straight years. Below is straight from their website as of Sunday afternoon.



Lastly, SVB’s CEO sold a good amount of stock right before the collapse. Let’s be clear, this was likely a scheduled sell, still, it is interesting.



Banks do fail sometimes
Although it had been more than 850 days since a bank failed in the U.S., it is important to remember that this does happen from time to time. This nice chart from the FDIC shows how often it happens.



Now what?
Late Sunday evening, the Federal Reserve, Treasury and FDIC issued a joint statement that all deposits at SVB will be protected. At the same time, shareholders and some debtholders will not be protected.

The Federal Reserve is making available additional funding for banks across the U.S. to make sure they can meet all the needs of their depositors. This is a massive step and will help banks avoid the situation that happened at SVB. It will also bolster confidence in the banking system and prevent contagion.

This is a very fluid situation and news is coming out seemingly every hour. We will continue to monitor things, but to us things appear to be contained and a full-blown crisis isn’t the likely scenario. Should that be the case, this recent worry could very well be an opportunity for investors to use to before likely higher equity prices in 2023.

March Volatility Emerging
Mon, Mar 13, 2023

The month of March is nearly halfway through and volatility has begun to pick up. Whereas the S&P 500 was up around 2% month to date as of this time last week, currently the index is down over 2.5%. As shown below, since the end of WWII March ranks in the middle of the pack with regards to the average spread between its Intra month high and low (on a closing basis). That compares with months like October—the most volatile of the year—which has averaged an Intra month range of just under 8%.



Although historically March might not be the most volatile month, in recent years that Intra month volatility has kicked up. In the chart below we show the spread between March's Intra month highs and lows for each year since the end of WWII. Over time, there has consistently been some ebb and flow in this reading with some outlier years in particularly volatile times like the late 1990s and early 2000s and then of course 2020. October has historically been known as a month for market turnarounds, but March has become increasingly active on that front as well.



This Doesn't Happen Often
Fri, Mar 10, 2023

After a surge earlier this week that took the yield on the two-year US Treasury up above 5% for the first time since 2007, concerns over the health of bank balance sheets have caused a sharp reversal lower. From a closing high of 5.07% on Wednesday, the yield on the two-year US Treasury has plummeted to 4.62% and is on pace for its largest two-day decline since September 2008. Remember that?

A 45 basis point (bps) two-day decline in the two-year yield has been extremely uncommon over the last 46 years. Of the 79 prior occurrences, two-thirds occurred during recessions, and the only times that a move of this magnitude did not occur either within six months before or after a recession were during the crash of 1987 (10/19 and 10/20) as well as 10/13/89 when the leveraged buyout of United Airlines fell through, resulting in a collapse of the junk bond market. As you can see from the New York Times headline the day after that 1989 plunge, just as investors are worrying today over whether we're in for a repeat of the Financial Crisis, back then they were looking at 'troubling similarities' to the 1987 crash. The year that followed the October 1989 decline wasn't a particularly positive period for equities, but a repeat of anything close to the 1987 crash never materialized.

 

Here are the percentage changes for the major indices for WTD, MTD, QTD & YTD in 2022-



S&P sectors for the past week-

 

Here are the current major indices pullback/correction levels from 52WK highs as of week ending 3.17.23-


Here is also the pullback/correction levels from current prices-


Here are the current major indices rally levels from 52WK lows as of week ending 3.17.23-

 

​

Here are the upcoming IPO's for this week-

 

Stock Market Analysis Video for March 17th, 2023
Video from AlphaTrends Brian Shannon


ShadowTrader Video Weekly 3/19/23
Video from ShadowTrader Peter Reznicek
(VIDEO NOT YET POSTED!)

 

StonkForumers! Come join us on our stock market competitions for this upcoming trading week ahead!-

========================================================================================================

StonkForums Weekly Stock Picking Contest & SPX Sentiment Poll (3/20-3/24) <-- click there to cast your weekly market direction vote and stock picks for this coming week ahead!

Daily SPX Sentiment Poll for Monday (3/20) <-- click there to cast your daily market direction vote for this coming Monday ahead!

========================================================================================================

It would be pretty sweet to see some of you join us and participate on these!

I hope you all have a fantastic weekend ahead!

 

​

Here are the most anticipated Earnings Releases for this upcoming trading week ahead.

***Check mark next to the stock symbols denotes confirmed earnings release date & time***

Monday 3.20.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW MONDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Monday 3.20.23 After Market Close:

Spoiler: CLICK HERE TO VIEW MONDAY'S PM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Tuesday 3.21.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW TUESDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Tuesday 3.21.23 After Market Close:

Spoiler: CLICK HERE TO VIEW TUESDAY'S PM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Wednesday 3.22.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW WEDNESDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Wednesday 3.22.23 After Market Close:

Spoiler: CLICK HERE TO VIEW WEDNESDAY'S PM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Thursday 3.23.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW THURSDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Thursday 3.23.23 After Market Close:

Spoiler: CLICK HERE TO VIEW THURSDAY'S PM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Friday 3.24.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW FRIDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Friday 3.24.23 After Market Close:

Spoiler: CLICK HERE TO VIEW FRIDAY'S PM EARNINGS TIMES & ESTIMATES!

(NONE.)

 

And finally here is the most anticipated earnings calendar for this upcoming trading week ahead-
($PDD $ARRY $NKE $FL $GME $CSIQ $TME $CHWY $GIS $ACN $NIU $RVLP $WOOF $DRI $DOYU $ONON $ADMA $FDS $BZ $BRAG $AIR $KBH $DOOO $GAMB $CMC $EXPR $OLLI $HQY $BITF $ACDC $NVGS $HRTX $HUYA $AEVA $CTRN $WGO $LLAP $OXSQ $SMTI $XFOR $PHUN $SPPI $BZUN $EXAI $WVE $PHR $HYPR $KULR $XGN $SCVL)


If you guys want to view the full earnings post please see this thread here-

• Most Anticipated Earnings Releases for the week beginning March 20th, 2023 <-- click there to view!

 

Top of the morning StonkForumers! Happy Monday to all of you and welcome to the new trading week and a frrrrrrrrrrrresh start. Here is a quick check on those futures as we are a little over 2 hours from the cash market open.

GLTA on this Monday, March the 20th, 2023!

 

Good Monday morning StonkForumers!

Here is this morning's pre-market news thread for those of you wanting to get a quick read before today's open-
<-- click there to read!

Hope everyone has a great trading week ahead!

 

Morning Lineup - 3/20/23 - "Merger" Sunday
Mon, Mar 20, 2023

After opening higher last night, futures gave up all of their initial gains and sold off sharply as Asia opened for trading. Shortly after the European open, though, buyers stepped back in and futures have rebounded back to the flat line. Outside of the Credit Suisse/UBS arranged marriage by Swiss Bank regulators that was announced on Sunday afternoon, there really hasn't been much in the way of market-moving news, and there are no economic reports on the US calendar. Regional banks have been rallying, but First Republic (FRC) is down sharply again after it had its second ratings downgrade in a week.

In the press conference on Sunday discussing the shotgun ‘merger’ between Credit Suisse and UBS, regulators and officials of the banks cited the turmoil in the US banking sector as the reason for Credit Suisse’s demise. There’s always a need for a scapegoat, but to blame regional US banks for Credit Suisse’s downfall is a stretch. For now, let’s put aside the fact that just last week Credit Suisse announced an $8 billion loss in its delayed annual report. The bank noted that “the group’s internal control over financial reporting was not effective,” and its auditor PriceWaterhouse Coopers gave the bank an ‘adverse opinion’ with respect to the accuracy of its financial statements. Well before the SVB failure, Credit Suisse was already a dirty shirt.

Just look at the stock price. From its peak of over $77 per ADR in 2007, Credit Suisse (CS) has been in a long downtrend. After bottoming at just under $19 in early 209, the share price quickly tripled over the last six to seven months, but the bounce was short-lived. By 2012, the share price was back below its Financial Crisis lows and in the ensuing years, any rally attempt quickly ended with a lower high followed by a lower low. The collapse of SVB and stresses on other US banks may very well have been the straw that broke Credit Suisse’s back, but if the bank had proper internal controls in the first place maybe it would have noticed the pile of hay on its back in the first place.

 

Here is a final look at today's market and futures maps, as well as how each sector performed individually at the close on Monday, March 20th, 2023.

 

Here is EW's monthly ER calendar for the next 5 weeks out for anyone looking around for it:
(note: these are only showing the "confirmed" earnings release dates)

 

Top of the morning StonkForumers! Happy Tuesday to all of you and welcome to the new trading day and a frrrrrrrrrrrresh start. Here is a quick check on those futures as we are a little under 2 hours from the cash market open.

GLTA on this Tuesday, March the 21st, 2023!

 

Good Tuesday morning StonkForumers!

Here is this morning's pre-market news thread for those of you wanting to get a quick read before today's open-
<-- click there to read!

Hope everyone has a great trading day ahead!

 

Morning Lineup - 3/21/23 - All Quiet (For Now) on the Banking Front
Tue, Mar 21, 2023

There's been no new news on the banking front this morning, and investors are taking the lack of news as an excuse to rally. US futures are up about 0.80% as treasury yields spike higher. Ahead of tomorrow's fateful Fed decision, the only economic report on the calendar is Existing Home Sales at 10 AM today.

With an increase of ‘just’ 14 basis points (bps), yesterday broke a streak of seven straight days that the yield in the yield of the 2-year US Treasury had a daily move of more than 20 bps. Another record streak that continued, though, was the fact that the 2-year yield traded with an intraday range of at least 30 bps. Going back to 2000, which is as far back as we have intraday data for the 2-year yield, the current six-trading day streak of 30+ bps intraday moves is now longer than the five-trading day streak in September 2008 after the Lehman bankruptcy.



Not only is the current streak of wide daily ranges a record, but it also included what was a record single-day intraday range. Last Wednesday, the 2-year yield’s intraday range spanned a low of 3.71% to a high of 4.41%. That 70-bps range was a full 10 bps more than the prior record of 60 bps back on 9/19/08. Is that enough action for you?

 

Here is a final look at today's market and futures maps, as well as how each sector performed individually at the close on Tuesday, March 21st, 2023.