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Morning Commentary

FED COUNTDOWN BEGINS †

By Charles Payne, CEO & Principal Analyst
3/20/2023 9:36 AM

We limped out of the week, but it could have been worse in many ways. There was a lot of justified anxiety on Friday, which are known for bank failure announcements after the close.

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S&P 500 Map

Weak Week

Market breadth underscores ‘gains’ in the S&P 500 were all driven by the weight of mega-cap names.  Banks were huge losers, but I’m concerned the action in the oil patch suggests a global recession is imminent.

S&P 500 Map

Ugly Breadth

Market internals have turned extremely weak as well. New lows are surging.

Market Breadth

NYSE

NASDAQ Composite

Advancers

943

1,957

Decliners

2,273

3,064

New highs

62

152

New lows

534

960

Up volume

12.4 billion

14.7 billion

Down volume

20.9 billion

15.9 billion

Fear & Volatility

The Volatility Index (VIX) was up more than 10% on the week. However, I will point out that each intraday move above 30 saw a swift change in the overall narrative, as stocks would find bidders, and the VIX calmed down. So, of course, we enter the week with bias to the upside.

Chart

U.S. Industry Indexes

Watch banks, airlines (if they can’t make money under these conditions), insurance, healthcare, and biotech. Gold shines, but will it be a sustained move?

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Seen This Movie

Big news yesterday brought memories of Bear Stearns rushing to my brain. Of course, the circumstances are different these days than the all-out theft via Collateralized Debt Obligations (CDOs) and other shenanigans that put the world at risk from Wall Street’s greed, but let’s be on guard.

On Sunday, March 16th, 2008, Bear Stearns was sold to JP Morgan for $2.00 a share. The news sent shockwaves through the investing world. That was a 93% discount for the nation’s fifth-largest investment bank.

Later, the deal was pushed to $10.00 a share as the Fed lent JP Morgan $30.0 billion to make the purchase. It was hoped this emergency action to save the 85-year-old investment bank would stave off contagion and collapse in the banking sector.

It did not, - as soon after, there was a shotgun wedding of Bank of America and Merrill Lynch, and Lehman Brothers was allowed to go out of business.

Going into the weekend, there was a feeling there would be fireworks. Perhaps, there would be a bank failure announcement, or something else, which often comes after Friday closes.

It was Deja-vu all over again.

On Sunday, we learned the United Bank of Switzerland (UBS) would acquire Credit Suisse for $3.2 billion dollars. The stock closed at a $7.4 billion valuation on Friday.

The Swiss National Bank will provide $100 billion in liquidity to offset what has been daily outflows of $10.0 billion at UBS.

The deal will also see bondholders wiped out. That’s a new wrinkle, and I’m not sure of the implications.

Portfolio Approach

There are no sector weighting changes this morning in our Hotline Model Portfolio.

Today’s Session

Most banks, including the regional ones are trading higher on the back of the UBS/CS deal.  First Republic Bank (FRC), however, is continuing its downtrend as it receives another rating cut from S&P Global Ratings to a B+ from A-.  According to S&P, "The $30 billion in deposits that First Republic reported it will receive from 11 large U.S. banks should ease near-term liquidity pressures, but it may not solve the substantial business, liquidity, funding, and profitability challenges that we believe the bank is now likely facing."  The bank is currently on “CreditWatch negative.”

Yields are on US Treasury’s are relatively flat this am with the benchmark 10 year trading around 3.41%.


 

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