A shaky start to the week finally ended like this for the leading indices on the New York Stock Exchange:
- The heavy industry Dow Jones fell 0.17 percent.
- The technology-dominated Nasdaq Composite Index rose 0.18 percent.
- The Standard & Poor’s 500 index rose 0.05 percent.
Thrown between the walls by investors last week, Backwest Regional Bank ended up up about four percent, but still half as big, compared to two weeks ago. The SPDR S&P Regional Banking ETF fell less than 2%, while major banks Citi, Wells Fargo and JP Morgan rose.
On the macro front, the market is awaiting April inflation figures, which will be published on Wednesday, followed by producer prices on Thursday. After Friday’s strong jobs numbers, the market is now pricing in a ten percent chance that interest rates will rise further at the next rate meeting, but the market is still pricing in up to several rate cuts before the end of the year.
The interest rate on two- and ten-year government bonds in the United States rose to four and 3.51 percent, respectively. The past few days have also been marked by new discussions about the US debt ceiling and a new deadline is fast approaching. Treasury Secretary Janet Yellen said Monday CNBC That the debt ceiling must be raised to avoid an “economic catastrophe”.
Bancoro for trouble
The past two months have presented a wild drama in the financial markets, with banks at the centre. It all started in March with the collapse of Silicon Valley and Signature Bank, before Credit Suisse swallowed rival UBS.
Last week, another regional bank was taken over by US authorities, when First Republic was sold to JP Morgan with the help of Federal Insurance Fund FDIC.
The turmoil sent US bank stocks crashing on the stock market, as many regional banks shifted between sharp declines and sudden moves in the other direction. The closely watched S&P 500 financial sector index is now close to falling below the peak level from 2007 that came before the financial crisis the following year.
At that time, it would take more than ten years before the index reached the same level again.
After the index bottomed out in the spring of 2009, there was a fairly steady rise in the years that followed, and the index level finally regained its 2007 peak in January 2021. The index is now on track to fall below the 2007 peak for the first time in three years.
according to bloomberg It could be an ominous sign for the rest of the stock market. If the bank’s shares were to fall further, it would create more pressure to hold capital and reduce lending. This could again affect an economy threatened with recession on the tail of the sharp rate hikes from the Federal Reserve over the past year or so.
A Federal Reserve survey discussed by the Financial Times on Monday evening showed that US banks are expected to tighten lending practices for the current year due to concerns about lending portfolios combined with fear of continued withdrawals among clients.
– Very attractive
Hedge fund manager Marius Burthen has always had a pessimistic view of the market, and he still manages a conservative strategy. As of now, the fund owns 27 percent of equities, 40 percent of high-interest bonds and 33 percent of cash notes. Contribution is historically low.
— We’re careful, but that’s mostly because I’m very concerned about risk-adjusted return. When things are as uncertain as they are now, in our view, this is not the time to take on too much equity risk, says Borthen, and adds:
Sometimes it is smart to stand on the sidelines and that way you don’t risk big portfolio losses. Historically, I’ve maintained that we should always be fully invested, but then I often make mistakes, or a better buying opportunity comes a little later.
So far this year, his fund, Blueberry Capital, has returned about 11 percent. He expects the return to be obtained somewhere other than the stock market in the future.
– I see that we are now getting a very attractive return in the credit market without risking too much. This means that with so many bonds, the fund’s return is probably better than average since I started in 2010.
Borthen believes the banking crisis will be felt in the medium term by the market, and points to the fact that banks are now tightening lending.
– What worries me most now are the side effects of the increase in interest rates and banking crises. Obviously, credit growth will slow down, which in turn will negatively affect growth, which will have a direct impact on corporate earnings, he says.
He stays away from bank stocks, including Norwegian stocks.
– Although it appears that Norwegian banks are navigating well through this turmoil, increasing risk premiums globally will put pressure on price development in Norway. I also do not rule out that more banks will have problems in the fall.
Borthen has already disposed of real estate company Entra and incurred a loss of that stake. The remaining shares of the fund are mainly in the energy sector. The price of oil (burn spot) has risen about seven percent to $77 a barrel in the past week, but Burthen thinks it will be higher.
In the medium term, I think the risk is to the upside in the oil market, which is why we are exposed in this sector. For me to be positive about the stock market as a whole, we’d like to see major indices doing better again and inflation coming down to stable levels again, but I don’t think that’s going to happen in the next 12 months.
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Fourth straight week of gains on Wall Street
Fourth straight week of gains on Wall Street