The S&P 500 recorded an impressive gain of ~7% for the first quarter. Optimistic on the resolution of the banking crisis – and prospects of Fed rate cuts in the second half – the bulls have regained their mojo. But this raises a question: why would the Fed cut rates? It’s not because inflation is under control. For example, could it be because the economy needs assistance? Stress in the financial system? A credit event? If so, is that a good thing? Here I also look at the monthly chart – it deserves our attention.
Why I Bought BAC
Stocks are always climbing the “wall of worry”. And there is no end of “worries” today. Perhaps front of mind is the current lack of confidence in the US banking sector. However, I think it represents a great long-term risk reward opportunity in quality large cap banks. Buy when others are fearful and sell when they are greedy. This post looks at why Bank of America could be a good bet… investors have rarely been this fearful.
The Fed Must ‘Choose their Poison’
The collapse of SVB and tightening financial conditions has put the Fed in a very difficult spot. For example, prior to the collapse they had a green light to raise at least 25 bps. Not now. Tightening rates could cause further pressure in the banking sector. However, if they choose not to – what signal does that send. There are no easy choices…
Markets Suffer Worst Week for 2023
Markets are in a state of panic. A small regional bank – Silicon Valley Bank – suffered a bank run this week. Over $42B was withdrawn in the space of just two days. What happened? On the surface it looks like very poor risk management – where SVB was effectively forced to sell long-term bonds which were underwater. Call it a margin call. Their interest rate risk was not adequately hedged. More details will come out in the coming days… however this sell off is taking the entire sector down with it. Is it warranted?
For a full list of posts from 2017…