Pot of gold stolen by 3 witches

There was no pot of gold at the end of the rainbow for stocks on Friday as struggling banks and triple witching courted sellers. Sentiment is down across the board according to the latest survey by University of Michigan.

One hike too far? First off, Happy spring. You didn’t know did you? I have to admit, though I watch it closely, spring pretty much sprung up on me this year. It has not exactly been a quiet past few weeks in the markets. What started out as a warning sign from a well-known regional bank in California led to some self-fulfilling tweets which ultimately led the bank to fail. Another would follow. A third was barely hanging on for dear life. The Treasury and Fed stepped in to backstop the sector hoping to freeze any contagion in place. By Friday, that third bank got a little help from its friends, some bigger banks. Getting all that aid from the Feds and others led the bank to cut its dividend… for good measure 😉. That caused a bit of a selloff in the stock, because who wants to own a half-alive bank that pays no dividend?

While that was happening, in Switzerland, Credit Suisse was bleeding out, discreetly, as Swiss banks do. The media coverage was not quite as sensational as the news around the US banks, but it was front and center for Wall Street, which watched things unravel carefully. And then bam, there it was, over the weekend, the bank, founded in 1856, would be acquired in a central bank-brokered combination with UBS. Wait, doesn’t this at least faintly remind you of anything in somewhat recent market history? Can you remember the images of workers removing the Lehman Brothers sign in 2008? Lehman too, was an old, venerated institution founded just a few years before Credit Suisse. Lehman was not the only respected financial institution to either collapse or get gobbled up by its rivals in that debacle. There were others, and the end result was The Global Financial Crisis, which quite possibly was the single driver for “The Great” moniker being added to the 2007-2009 recession.

Now, it is important to recognize that these struggling banks ultimately met their fate due to mismanagement. There are plenty of other banks that are completely healthy. However, financial stress brought on by the Fed’s and ECB’s aggressive monetary tightening exposed the weaknesses of these risk-cavalier banks. That, my friends, is a sure sign the central banks’ policies are hitting their mark. This week, the FOMC will meet tomorrow and Wednesday, and it will announce policy moves at the confab’s completion. This will possibly be the toughest decisions in the Fed’s recent history. Inflation is still too high, and the labor market is still hot. That would usually warrant further rate hikes. However, the banking system, the capital markets, and, indeed, the nerves of consumers are all on tenterhooks. I suppose the Fed could just throw in another hike for good measure… and risk further crisis. In fairness, crisis is certainly one way to ensure reduced consumer demand and ultimately, reduced inflation. No, this will not be an easy meeting for the central bankers. Futures and swaps markets are still factoring in another +25 basis points in either this week’s meeting of May’s. There is also hot debate amongst well-known academics who gain notoriety for being right 50% of the time and enjoy that notoriety until they are wrong. If you tallied all their opinions, you would probably find a 50/50 split between those that think the Fed should raise another ¼ percentage point and those that think a pause is warranted. Most of them are tenured or retired, so you can bet that those opinions are completely objective. Really, it is the Fed who will have to wrestle with all that in the coming days. We can expect to hear quite a bit on Wednesday, and what we hear will surely inform us on the markets’ behavior in the weeks and months to come. What we do know for sure, is that the days will grow longer starting tomorrow (in the northern hemisphere). That is one thing that we can count on. Happy spring!

WHAT’S SHAKIN’

First Republic Bank / CA (FRC) shares are lower by -17.72% in the premarket after Standard & Poor’s downgraded the company’s credit rating for a second time in as many days. This latest move puts the company one step further down in the junk category. Potential average analyst target upside: +365.1%. WHY IS THIS SO HIGH considering the company’s situation? This number is simply the difference between the stock’s price and the average 12-month price targets of Wall Street analysts. It is in no way a recommendation and it does not mean that the stock will actually achieve the targets. Analysts are likely to revise their targets in response to current events.

US Bancorp (USB) shares are higher by +3.64% in the premarket after Baird raised the company’s rating to OUTPERFORM and raised its 12-month price target. Dividend yield: 5.82%. Potential average analyst target upside: +65.7%.

FRIDAY’S MARKETS

Stocks slid on Friday as triple witching and banking sector indigestion gripped the markets. The S&P500 was lower by -1.10%, the Dow Jones Industrial Average fell by -1.19%, the Nasdaq Composite Index slid by -0.74%, and the Russell 2000 Index declined by -2.56%. Bonds gained and 10-year Treasury Note yields fell by -14 basis points to 3.42%. Cryptos gained +5.12% and Bitcoin climbed by +8.36%.

NEXT UP

• No economic releases today but later in the week we will get housing numbers, regional Fed reports, Durable Goods Orders, S&P Global flash PMIs, and the FOMC policy results on Wednesday. Consult the attached economics calendar for times and details of this week’s releases.