The week ahead 03/13/2023
“This kind of shocked me… I would have guessed [Silicon Valley Bank] would have been able to raise the money that they apparently needed, but obviously, when they looked under the hood, it was a lot worse than anyone anticipated.”
And “a lot worse” it was.
Silicon Valley Bank sent shockwaves through the market over the last few days.
If you’re a bit behind on what’s happened — here’s our recap from the beginning.
The verdict is in… Bailout?
Well, pretty much.
“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
So there won’t be a ‘full bailout’ — saving the bank’s employees and keeping them operational as a standalone company.
However, it’s a bailout for the depositors of both SVB and Signature Bank (which has admittedly not been talked about enough because it’s still a big deal as well).
Who’s Payin’ Up?
This is a bit of a weird one, as the deposit insurance fund is bearing the risk — not taxpayers.
At the same time, the FDIC is funded via receiving small portions of bank deposits — which is essentially an involuntary tax being levied by a government agency.
In any event, what’s important here is that precedent has been set.
If we see this again, this sort of response by the FDIC + Fed + Treasury is what the market will now expect.
Who’s the Most Happy?
All of these companies are…
Who’s the Most Furious?
The banking sector sure isn’t happy, considering many financial institutions have worked hard to address interest rate hikes and a questionable economy throughout the past year.
Below are the absolutely brutal pre-market drops from this morning:
Western Alliance Bancorp’s shares slid -63%
PacWest Bancorp’s stock tumbled -38%
Comerica’s stock fell -19%
Zion Bancorporation’s stock fell -22%
Fifth Third Bancorp’s stock lost -10%
Charles Schwab’s shares lost -7.9%
Bank of America’s stock fell -4.6%
Wells Fargo’s stock slid -3.7%
“Risk and fear are still very much alive in this market place…The electronic nature of the banking system now, people can move money out very rapidly.
This isn’t people lined outside looking to get 20 dollars out… This is people calling, going on the Internet, and pulling out millions of dollars very quickly.
So this liquidity issue is bigger than the Fed ever expected. And I think it’s going to be a struggle going forward here to kind of establish a sense of liquidity in the system.”
Where the Rubber Meets the Road…
This is looking more like “that moment” for Fed Chair Jerome Powell.
This is Powell’s time to make a difficult decision that he always knew would come if the Fed theoretically “broke” something.
Last Wednesday, the market was pricing an 80% probability of a 50 basis point hike.
Now — there’s over a 40% chance that there will be NO HIKE AT ALL!
The Consumer Price Index (CPI) and Producer Price Index (PPI) are now more important than ever. If the next set of data comes in hot… what’s Powell going to prioritize? Inflation or financial stability?
Key Earnings Announcements:
Focusing on Academy Sports & Outdoors, Adobe, Dollar General, FedEx, & SentinelOne.
Monday (3/13): GitLab, ZIM Integrated Shipping
Tuesday (3/14): Blade, Guess, Lennar, SentinelOne
Wednesday (3/15): Adobe, Arcos Dorados, Array Technologies, Five Below, Oatly, UiPath
Thursday (3/16): Academy Sports & Outdoors, Blue Apron, Dollar General, FedEx, Signet Jewelers, Williams-Sonoma
Friday (3/17): XPeng
What We’re Watching:
FedEx is considered a solid gauge of U.S. GDP and acts as a “proxy economic report” whenever its earnings are revealed.
Academy Sports & Outdoors (ASO)
Academy Sports & Outdoors has been one of our biggest winners over the past year (+68% YoY). Dick’s Sporting Goods just crushed their earnings report, so we’ll see if this quickly growing competitor will follow suit.
SentinelOne added over 600 customers in our fiscal third quarter. Total customer count grew about 55% year-over-year to over 9,250 at quarter-end.
Now it’s time to see if SentinelOne will continue to improve its operating margin at a strong pace. Fiscal third quarter GAAP operating margin was -90% (+30% YoY). Non-GAAP operating margin was -43% (+26% YoY).
Investor Events / Global Affairs:
A crazy time for 2-year yields and Pfizer spends $43 billion for cancer solutions.
Rare Sighting in the 2-Year Yield
The 2-year yield is has been down over -85 basis points in the last three (full) trading days. In the last 40 years, the 2-year yield has only declined that much in three days ONE TIME.
That was the 1987 stock market crash.
Remember — treasury yields fall when the demand is high and treasury prices rise. The biggest bank collapse since the Great Financial Crisis encouraged a flight to bond safety. Shoutout to Jim Bianco for the research!
Pfizer (PFE) Buys Cancer Drugmaker Seagen (SGEN) for $43 Billion
Pfizer has agreed to pay $43 billion for Seagen, a biotech that’s pioneered a respected group of cancer drugs. Under the terms, Pfizer would pay $229 per share.
According to Pfizer executives — Seagen, which expects $2.2 billion in revenue this year, could bring Pfizer more than $10 billion in revenue by 2030 if the biotech succeeds in broadening application of its drugs to more kinds of tumors.
Major Economic Events:
J-Pow’s back is against the wall.
Monday (3/13): N/A
Tuesday (3/14): Consumer Price Index (CPI), NFIB Optimism Index
Wednesday (3/15): Business Inventories, Empire State Manufacturing, Homebuilders Survey, Producer Price Index (PPI), Retail Sales
Thursday (3/16): Building permits, Housing Starts, Import Price Index, Philadelphia Fed Manufacturing
Friday (3/17): Capacity Utilization, Consumer Sentiment, Industrial Production, Leading Economic Index (LEI)
What We’re Watching:
Inflation for Consumers (CPI)
Previous Headline CPI (YoY): +6.4% | Forecast Headline CPI: +6.1%
Previous Core CPI (MoM): +0.4% | Forecast Core CPI: +0.4%
Inflation for Producers (PPI)
Previous Headline PPI (YoY): +6% | Forecast Headline PPI: +5.4%
Previous Core PPI (MoM): +0.6% | Forecast Core PPI: +0.4%
Leading Economic Index (LEI)
For ten straight months, the Conference Board’s Leading Economic Index (LEI) has been slumping. This is a key economic outlook measure and we find out their updated outlook on Friday. Their last report stated…
“The Conference Board still expects high inflation, rising interest rates and contracting consumer spending to tip the US economy into recession in 2023.”
Which stocks moved the most last week.
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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.