PacWest Bancorp (PACW) shares are down 45% as I write this after news broke that the bank is evaluating strategic options – including a possible sale.
At the same time, Western Alliance Bancorporation (WAL) shares are down more than 30%, despite that bank denying it’s up for sale.
The news comes on the heels of First Republic Bank’s failure which resulted in its sale to JP Morgan Chase & Co. (JPM) Monday. And the failures of Silicon Valley Bank and Signature Bank back in March.
The fact is, the yield curve has been inverted since July 2022, meaning short-term interest rates are higher than long-term interest rates. So, it’s no surprise that regional banks like PacWest, Silicon Valley, Signature, and First Republic are running into problems.
And as long as the yield curve remains inverted, there is the risk that other banks could fail the Federal Reserve’s capital requirements.
The fact is, I rarely, if ever, recommend that my readers buy bank stocks… stay tuned for more on that tomorrow.
In today’s Market 360, we’re going to discuss the banking crisis, yesterday’s much anticipated Federal Reserve Open Market Committee (FOMC) statement and how you can prepare for the historic $8.3 trillion “Banking Shock” I see coming…
The Fed Hikes Rates… Again
As widely expected, the Federal Reserve announced a 25-basis point rate hike in yesterday’s FOMC statement.
I personally think that’s a mistake, but they did it.
This marks the Fed’s 10th straight interest rate hike and puts the federal funds rate target range to 5.0% to 5.25%. This is the highest level since September 2007.
This is the most aggressive rate hike campaign we’ve seen since the 1980s – with rates moving 5% higher in a little over a year’s time:
That said, one important thing was missing from yesterday’s statement. The Fed removed the usual language that they would continue to raise rates.
So, that’s a bit of a victory.
Sure, they fell short of saying they would stop raising rates, but as Federal Reserve Chairman Jerome Powell commented during his press conference, dropping that language was a “meaningful change.” He further stated that the central bank’s June decision would be driven by incoming data.
Stocks were initially muted out of the gate, but when Powell confirmed he did not anticipate rate cuts this year and that “a decision on a pause was not made today,” stocks turned downward.
Markets closed down yesterday, with the S&P 500 down 0.7%, and the Dow Jones Industrial Average and NASDAQ down 0.8% and 0.46%, respectively.
The equities that took the biggest hit? Not surprisingly… banking stocks.
PacWest closed down 7% yesterday, with Zions Bancorporation NA (ZION) sliding 4.6% and Western Alliance falling 3.1%.
Those losses have extended into today with, as mentioned earlier.
In regard to the banking system, during his press conference, Powell said, “Conditions in that sector have broadly improved since early March, and the US banking system is sound and resilient.”
That certainly doesn’t seem to be the case…
This Is Only the Beginning…
Bill Ackman, who you know from CNBC, tweeted that “the regional banks are at grave risk.”
The fact is systematic banking failures are starting to take a toll and drag down the entire market.
That’s why I’ve scheduled a live private briefing on Tuesday, May 9, at 7 p.m. Eastern time.
I believe this is just the beginning and we’re about to see a historic “$8.3 Trillion Banking Shock.”
I’ll cover all the details live on May 9, at 7 p.m. Eastern Time.
During the event, you’ll also be able to submit any questions you may have for me during an interactive Q&A session. To participate, you have to get there on time.
Click here to reserve your spot today.
This could be the most important banking briefing of 2023. I hope to see you there.
Sincerely,
Louis Navellier
