On any given day, various exchanges report multiple trading halts. These halts can take place for various reasons, including pending news or too much volatility. In today’s session, PacWest Bancorp (NASDAQ:PACW) and Western Alliance (NYSE:WAL) are among the two halted stocks gaining the most investor attention — and for good reason.
PacWest and Western Alliance are down 43% and 39%, respectively, from yesterday’s close. Notably, these declines are actually much better than today’s lows, which saw even steeper losses.
The volatile declines these stocks have seen stem from reports last night that PacWest is now “exploring strategic options.” This language typically implies a company is putting itself up for sale, signaling to prospective buyers to get their bids in.
Given the ongoing turmoil in the regional banking sector, this news isn’t good. Investors have clearly taken the view that PacWest may be the next domino to fall. And considering certain regional bank collapses have resulted in a complete loss of value for equity holders, investors are fleeing for the exits.
Let’s dive into what to make of this news.
These Halted Bank Stocks Are Seeing Incredible Investor Flight
Right now, it appears many investors are asking themselves whether owning regional banks is a viable investment strategy. Indeed, billion-dollar companies aren’t supposed to go bust overnight. But that’s what we’ve seen play out in recent weeks in this beaten-down sector.
Amid significant capital flight and stress in the commercial banking space, regional banks have significantly underperformed their mega-cap counterparts. This has led to a truly bifurcated market, with investors clearly choosing to stay invested in larger banks, at the expense of the many regional options in the market.
Notably, executives at both banks have cited strength in their deposit bases as reasons for investors to remain calm. Of course, the market is taking these comments with a grain of salt. That’s partly because comments from Fed Chairman Jerome Powell during yesterday’s FOMC press conference that all is fine and dandy in the banking sector appear to not be the case. If the Fed can’t be trusted, who can?
In this market environment, I think steering clear of regional banks is likely a smart move, even if these stocks seem cheap. Capital preservation is a key goal of most long-term investors, and the risk of a complete loss on a position ought to spur investors to think twice before reaching for value right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
