The latest worry du jour has been about Swiss Banking giant Credit Suisse Group AG (CS). Think about this, it was down 24% last week and then another 53% on Monday. Here’s the catch, it was down more than 90% from the all-time highs at the beginning of last week before all the really bad news started to come out.
Now here’s the big question, should anyone really be surprised that CS was in trouble? When a stock is down this much, honestly, I don’t think the fact that it had some skeletons in the closet should be much of a shock to anyone. Well, the Swiss government gave rival Swiss bank USB a sweetheart of a deal to buy their long-time competitor, so they did it to the tune of $3.2 billion. How this all shakes out is not yet written, but given stocks bounced globally on Monday and UBS added 3% after being down close to double digits pre-market, things appear to be calming down.
One more note about this deal. UBS called it an acquisition, while Credit Suisse called it a merger. Is this a sign that this one might be off to a rough start?
Taking a closer look at yesterday, the majority of banks and regional banks had big gains. Yet, First Republic Bank fell 47% on Monday. Think about that, another bank was cut in half and a major Swiss bank was cut in half, but financial stocks, in general, bounced and some by a wide margin.
Our take here is that the market is starting to sniff out that many of these issues are company-specific and not an industry-wide phenomenon. SVB loaned out primarily to tech and start-ups, while those two areas dried up significantly over the past year, putting them in the crosshairs of trouble. Then two other crypto banks fell, which was not a shock given how cryptocurrencies did last year. The truth is that banks in general, are still in good shape; we just have some bad apples upsetting things. For more of our thoughts on financials, here’s a recent House View Spotlight sharing how we view the group in a positive light.
I’ll leave you with what very well could be the most important chart in the world right now. Financials currently sit above huge support right above their 2007 peak. Turning to the Financial Select Sector SDPR ETF (XLF), the $30 level is quite significant. Should this violate this area and move lower, it could be a warning that more pain is coming. Yet, should we find support near current levels (our expectation), it could be a nice area to consider overweighting the financials sector.
What could be next? It is hard for us to ignore the fact that stocks have been higher in 17 of the past 18 years in the month of April during a pre-election year. Yes, there are many worries and concerns out there, but market sentiment is quite low, and that could set the stage for a surprise springtime rally.
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