S&P 500 Meets ResistanceThere's a few good reasons to be bullish: (i) Q1 earnings were better than feared; (ii) Bank deposits have stabilized; (iii) Inflation is slowly (but surely) working its way down; (iv) The Fed is closer to its terminal rate; and (v) We're yet to see any major deterioration in credit. All of those are positives for risk assets. However, stocks have run a long way fast and are due to take a pause. I think that's what we will see...
Winners & Losers Post Big Tech EarningsWhat did we learn from big-tech earnings this week? In short, their earnings were "better than feared". However, they were far from stellar. The 'best of the best' could only muster single digit growth (Google was negative). The Search giant also disappointed on expense management. Amazon offered very soft guidance - with AWS growth expected to fall to deliver only 11% growth next quarter. That's a long way from its 40% growth a year ago. In summary, the challenges are not over for the sector - however investors are paying lofty premiums.
A Great Quarter… Can it Continue?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 BACStocks 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 2023Markets 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?
First Major CasualtyThis week saw the second largest banking collapse in US history and the first since 2008. Silicon Valley Bank - with a market cap of $18B only 4 weeks ago - collapsed Friday after a furious bank run. SVB's collapse was far less to do with the Fed raising rates - it was all to do with poor risk management - forced to sell their holding of treasuries at a loss. But this is nothing we have not seen before....
Equities Often Slow to Connect the DotsLast week I warned the market was poised for a sharp pullback. This week we got it. In short, both fundamentally and technically the market felt vulnerable. Market multiples pushed 19x forward on little substance. And from there, it did not take much for the bulls to lose their nerve...
Managing Risk During ‘FOMO’There are three important facets to the game of speculating required to make you consistently profitable: (1) understanding your psychology and emotions; (2) a deep understanding of how to manage your risk profile; and (3) access to a wide array of strategies that suit any range of market conditions. Today I think the first of these could be costing a lot of people money... in this case the "fear of missing out". This is a dangerous mindset which 'infects' a lot of speculators... don't let it be you.
Why a Rising US 10-Yr Yield Presents OpportunityBond yields are once again starting to rally. Rates are likely to be higher for longer. The US 10-year is now pressing 3.80% - and likely to exceed 4.0% in the coming weeks. The question is how how far will it go? My view is it will unlikely stay above 4.40% for any sustained period. And if anything - will resume it's downtrend in 2024 as we approach recession. That represents an opportunity for investors - here is how I am trading it.
