Market Commentary: The Latest on the Banking Crisis

On the heels of the first three bank failures in years, issues spread across the pond last week as Credit Suisse Group AG became the latest banking institution to make headlines over solvency concerns. Let’s be clear: This Swiss bank was a three-dollar stock two weeks ago and has long been a laggard, down more than 90% from its all-time high, even before the trouble started to brew. Our main question: Are Credit Suisse’s challenges really a surprise?

  • The banking crisis continued last week, but signs of contagion are decreasing.
  • Credit Suisse was the latest bank to falter, but UBS is expected to buy the Swiss bank.
  • The banks in trouble all had their own issues, while larger banks are still in good shape.
  • Stocks have hit major lows in March before and could reach them once again.
  • April is typically a very strong month, and sentiment is near levels usually seen at major lows.

The three banks that went under last week are two crypto-heavy institutions and Silicon Valley Bank, which loaned money to tech and startups. By no means are these traditional banks, and many other larger U.S. banks are in solid financial shape. Once rates rose and tech slowed, the issues piled up for Silicon Valley Bank and the company filed for Chapter 11 bankruptcy.

To help restore confidence in banks, the Federal Reserve, FDIC, and U.S. Treasury Department pledged that all SVB depositors will be fully backstopped and other banks can obtain financing through a new Bank Term Funding Program (BTFP). Many small banks still fell last week, but the large banks held up much better.

The Saudi National Bank said it would not buy any more shares or provide additional financial assistance to Credit Suisse. Since it is the largest shareholder, shares fell another 24%. While credit default swaps linked to Credit Suisse’s bonds hit all-time highs around the middle of the week, other European banks’ credit default spreads moved higher but not to new highs. Think of credit default swaps as the price of insurance against potential losses. A high number indicates worry is increasing about a bank’s solvency.

Swiss regulators and the Swiss National Bank offered Credit Suisse a $54 billion line of credit to help stem the initial worries. Over the weekend it was announced that UBS Group will buy Credit Suisse thanks to “substantial liquidity assistance” from the Swiss National Bank. The deal is for approximately $3 billion, with the Swiss government providing 9 billion Swiss francs to backstop potential losses.

The bottom line is the banking crisis is not over yet, but we don’t think the issues will spread to the entire system. Money is flowing from small banks to large banks, and large banks are in solid financial shape. Lastly, the Financial Select Sector SPDR ETF remains above the 2007 peak. As shown below, this could be one of the most important charts in the world. Should it significantly break the 30 level more trouble could be coming. As of now, it remains above this critical point.

Stocks Up Despite the Crisis

In the face of a major crisis, banks gained last week, with the S&P 500 up 1.5% and the tech-heavy Nasdaq up 4.4%. In fact, it was one of the largest weekly outperformances for the Nasdaq versus the Dow since the early 2000s.

A large drop in yields and lowered expectations about the Fed being ultra-aggressive drove the stocks’ bounce. At the same time, fear jumped to levels consistent with major market lows. In other words, there was no one left to sell. The American Association of Individual Investors (AAII) bulls were beneath 20% for the first time since September 2022, while bears were at the highest level they’ve been this year.

March is well-known for major market lows and volatility. March hit major lows in 2003, 2009, and 2020, amidst negative headlines and sentiment. In fact, over the past 20 years stocks have bottomed in March, as the chart below shows.

While the first half of March is often dicey, the second half of the month tends to see more green. Better times could be ahead if history is a guide. We think this could be possible.

Lastly, stocks in April during a pre-election year tend to do quite well, up 3.5% on average. But the amazing part is they’ve been higher 17 of the past 18 years, up more than 94% of the time. Yet another reason to believe a spring rally is quite possible.


This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

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