QQQ - The Banking Crisis Isn't Over
2023-05-08 13:40:00 ET
Summary
- A handful of stocks had fared well last week, but the broader averages were mostly lower. It is still a grind, and the range is still intact.
- We still have a banking crisis on our hands. Banks are giving us 0% interest on our money. Investors have woken up to the fact that they can transfer those funds elsewhere and get 4.5%.
- All are expecting the Fed to step in and add liquidity as this banking crisis lingers. The Fed is trapped by inflation, and its options are limited.
If you just saw Friday’s market numbers, you think that the market had a great week. A handful of stocks did, but the broader averages were mostly lower. It is still a grind. The range is still intact. If you had told me last May that we would see the 2 nd, 3 rd and 4 th largest bank failures in our history and that the market would be practically unchanged, I would not have believed you. But here we are, still stuck in our range. We are glad to have moved our funds into money market funds getting 4.5% months ago while we wait out the market - all with no risk. It was a good call, but what is next? The curse of the money manager. You are only as good as your last trade, so back to work.
We still have a banking crisis on our hands. The problem is that banks are giving us 0% interest on our money. Investors have woken up to the fact that they can transfer those funds elsewhere and get 4.5%. Money goes to where it is treated best, and banks aren’t treating it well at all. The reason is that their earnings depend on it. They have a choice - give depositors higher interest rates and hurt the bank’s earnings, or not give the interest and watch the money flee their vaults and go out of business. On Friday night after the market closed, data was released where we can see that the flight to better surroundings is still happening and will keep happening, forcing the closure of more banks. Every time they close a bank, a new bank will become the next most vulnerable and chosen target.
The banking crisis is not over. There is one very large bank that we are worried about. I don’t like to say which one because the problem with banking is that it is a confidence game, and it is irresponsible to start pointing fingers. Just know that the problem is not over and can get worse. Investors have been conditioned that the Fed will step in and solve any crisis with liquidity. All are expecting the Fed to step in and add liquidity as this banking crisis lingers. The Fed is trapped by inflation, and its options are limited. If the Fed is going to step in, why sell? As far as the Fed is concerned, if the market doesn’t sell off, they why step in? It’s like a game of chicken. This market may not trough until investors give in and sell.
I expect the market to break out of its 3800-4200 range to the downside. 4000 is the key and the heaviest strike price. A break below 4000 could get things moving quickly. However, better yet would be a move above 4200 first where the market sucks people back in. The market likes to make a fool out of the most people possible.
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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The Banking Crisis Isn't Over