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Tag: Regional banking

  • CNBC Daily Open: Markets triumphed over a tough first half

    CNBC Daily Open: Markets triumphed over a tough first half

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    Products at the showroom of the Nvidia Corp. offices in Taipei, Taiwan, on Friday, June 2, 2023.

    I-Hwa Cheng | Bloomberg | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    Soft headline, hard core
    The U.S. personal consumption expenditures price index     rose just 0.1% in May and 3.8% from a year ago — the lowest year-over-year increase since April 2021. Excluding food and energy prices, the figures are slightly higher. Prices increased 0.3% month over month and 4.6% from a year ago. But the annual number’s still 10 basis points less than economists expected.

    Sublime first half for stocks
    Pop the champagne: On Friday, U.S. stocks ended in the green for the day, week, quarter and first half of the year. The pan-European Stoxx 600 index added 1.16% to notch an 8.8% gain for strong first-half gains too, amid a lower-than-expected inflation reading for the euro zone. Preliminary data showed headline prices in June rose 5.5% year on year, down from 6.1% in May.

    Tesla zooms ahead
    Tesla produced 479,700 vehicles and delivered 466,140 vehicles during the second quarter. The delivery figures are an 83% year-over-year increase that beat Wall Street’s expectations. About 96% of the vehicles delivered were the Model Y and Model 3. As Elon Musk’s vehicle company doesn’t report sales figures, delivery numbers offer investors an idea of how many cars the company has been selling.

    Goldman’s not-so-golden Apple
    Goldman Sachs is talking to American Express to offload its Apple credit card and high-yield savings account, a source told CNBC’s Leslie Picker. Just last October, Goldman CEO David Solomon announced that Goldman and Apple have renewed their partnership through 2029. That’s an abrupt reversal of the partnership, and perhaps a sign that Goldman is looking to pull out of the consumer banking sector.

    [PRO] Broadening rally?
    The stock market’s astounding rebound in the first half of the year was mostly driven by seven Big Tech stocks — collectively, they accounted for 80% of the gains in the S&P 500, according to UBS. But analysts are optimistic the rally could broaden in the third quarter, especially since a recession may be further off than everyone had expected.

    The bottom line

    Friday marked the end of the first half of the year and, boy, what a six months it’s been.

    The Nasdaq Composite‘s surged 31.7% since the start of 2023, its best first half since 1983. To be sure, part of this is because of the base effect: The Nasdaq was 33.1% down last year. Compared with that dismal showing, any gain would appear monumental.

    Yet let’s not discount the Nasdaq’s incredible rally. This year has, in some ways, been a steeper hill to climb for stocks than the last.

    Sure, inflation’s been edging down. May’s PCE price index showed all the right numbers moving in the right direction (albeit at a slower pace than everyone had hoped for).

    But interest rates are the highest they’ve been in 16 years — and have shot up to those levels in a mere 10 months. Those rates have already broken three regional banks back in March, and one in May. Nonetheless, technology stocks — typically the most sensitive to the cost of borrowing — are still going strong. Indeed, Apple’s market capitalization closed above $3 trillion, making it the first publicly traded company ever to do so. That resilience of stocks, surely, is something to celebrate.

    The S&P 500 and Dow Jones Industrial Average didn’t do too shabbily either. The S&P popped 15.9% for its best first half since 2019, while the Dow climbed 3.8%.

    And the good news doesn’t stop there. Inflation expectations for a year from now dropped to 3.3%, the lowest level since March 2021. Meanwhile, consumer confidence increased more than expected, according to the University of Michigan sentiment survey.

    Much depends on June’s jobs report, out Friday. If it shows the labor market loosening just enough to not add to inflationary pressures, but still tight enough that unemployment won’t drastically increase, then we’ll have a start to the second half of the year as good as the way we ended the first.

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  • House Democrats release wave of bank reform bills

    House Democrats release wave of bank reform bills

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    WASHINGTON — House Democrats on Wednesday will release a slate of reform bills in response to the recent bank failures that triggered the worst crisis for the sector since 2008.

    Members of the House Financial Services Committee, led by ranking member Rep. Maxine Waters, D-Calif., are seeking an expansion to federal regulatory authorities and more oversight for bank executives, including clawbacks on compensation, fines and the closure of loopholes that allowed some banks to escape standards established under the 2010 Dodd-Frank Act.

    The committee has closely scrutinized the actions of the Treasury Department, the Federal Deposit Insurance Corporation, or FDIC, and other federal regulators along with executives of Silicon Valley Bank and Signature Bank leading up to and in the aftermath of the banks’ collapse.

    Waters urged committee Republicans to follow the lead of the Senate Banking Committee and work with Democrats to advance bipartisan legislation to protect the economy from future harm.

    “The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank make clear that it is past time for legislation aimed at strengthening the safety and soundness of our banking system and enhancing bank executive accountability,” she said.

    Here are the bills to be considered:

    Failed Bank Executives Accountability and Consequences Act: This bill would expand regulatory authority on compensation clawbacks, fines and banning executives who contribute to a bank’s failure from future work in the industry. President Joe Biden called for these actions shortly after the FDIC took over SVB and Signature Bank in March. The bill is cosponsored by Waters and fellow Democratic Reps. Nydia Velazquez, of New York; Brad Sherman and Juan Vargas, both of California; David Scott, of Georgia; Al Green and Sylvia Garcia of Texas; Emanuel Cleaver, of Missouri; Joyce Beatty and Steven Horsford, both of Ohio; and Rashida Tlaib, of Michigan. Some Republicans have expressed support for this act, which is similar to the bipartisan bill the Senate Banking Committee is considering.

    Incentivizing Safe and Sound Banking Act: This measure would expand regulators’ authority to prohibit stock sales for executives when banks are issued cease-and-desist orders for violating the law. It would also automatically restrict stock sales by senior executives of banks that receive poor exam ratings or are out of compliance with supervisory citations. The bill would have prevented SVB bank executives from cashing out after repeated warnings by regulators, according to Democrats. It is cosponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Horsford and Tlaib.

    Closing the Enhanced Prudential Standards Loophole Act: This will aim to close loopholes surrounding the Dodd-Frank Act’s enhanced prudential standards for banks that do not have a bank holding company. Neither Signature Bank nor SVB had a bank holding company before they collapsed. The bill would ensure that large banks with a size, complexity and risk equal to that of big banks with holding companies will be subject to similar enhanced capital, liquidity, stress testing, resolution planning and other related requirements. It is cosponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Vargas, Garcia and Tlaib.

    H.R. 4204, Shielding Community Banks from Systemic Risk Assessments Act: This measure would permanently exempt banks with less than $5 billion in total assets from special assessments the FDIC collects when a systemic risk exception is triggered, which was done to protect depositors at Silicon Valley Bank and Signature Bank. The FDIC would be allowed to set a higher threshold while requiring a minimal impact on banks with between $5 billion and $50 billion in total assets. It is sponsored by Green.

    H.R. 4062, Chief Risk Officer Enforcement and Accountability Act: This measure would have federal regulators require large banks to have a chief risk officer. Banks would also have to notify federal and state regulators of a CRO vacancy within 24 hours and provide a hiring plan within seven days. After 60 days, if the CRO position remains vacant, the bank must notify the public and be subject to an automatic cap on asset growth until the job is filled. The bill is cosponsored by Sherman, Green, and fellow Democratic Reps. Sean Casten, of Illinois; Josh Gottheimer, of New Jersey; Ritchie Torres, of New York; and Wiley Nickel, of North Carolina.

    H.R. 3914, Failing Bank Acquisition Fairness Act: This bill would have the FDIC only consider bids from megabanks with more than 10% of total deposits if no other institutions meet the least-cost test. This would ensure smaller banks have a chance to purchase failed banks, according to Democrats. It is sponsored by Rep. Stephen Lynch, D-Mass.

    H.R. 3992, Effective Bank Regulation Act: This legislation would require regulators to expand stress testing requirements. Instead of two stress test scenarios, the bill would require five. It would also ensure that the Federal Reserve does stress tests for situations when interest rates are rising or falling. It is sponsored by Sherman.

    H.R. 4116, Systemic Risk Authority Transparency Act: This bill would require regulators and the watchdog Government Accountability Office, or GAO, to produce the same kind of post-failure reports that the Federal Reserve, FDIC and GAO did after Silicon Valley Bank’s and Signature Bank’s failure. Initial reports would be required within 60 days and comprehensive reports within 180 days. It would be applicable to any use of the systemic risk exception of the FDIC’s least cost resolution test. The bill is sponsored by Green.

    H.R. 4200, Fostering Accountability in Remuneration Fund Act of 2023, or FAIR Fund Act: The legislation would require big financial institutions to cover fines incurred after a failure and/or executive conduct through a deferred compensation pool that would be funded with a portion of senior executive compensation. The pool would get paid out between two and eight years, depending on the size of the institution. The bill is sponsored by Tlaib.

    Stopping Bonuses for Unsafe and Unsound Banking Act: This measure would freeze bonuses for executives of any large bank that doesn’t submit an acceptable remediation plan for what’s known as a Matter Requiring Immediate Attention, or MRIA, or a similar citation from bank supervisors by a regulator-set deadline. It is sponsored by Brittany Pettersen, D-Colo.

    Bank Safety Act: Large banks would be prevented from opting out of the requirement to recognize Accumulated Other Comprehensive Income, or AOCI, in regulatory capital under this bill. AOCI reflects the kind of unrealized losses in SVB’s securities portfolio. It is sponsored by Sherman.

    Correction: This story was updated to reflect that the bills are being released Wednesday.

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  • Millionaires support raising Federal Deposit Insurance Corp. limits. They may be overlooking ways to access more coverage on deposits now

    Millionaires support raising Federal Deposit Insurance Corp. limits. They may be overlooking ways to access more coverage on deposits now

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    Customers outside a Silicon Valley Bank branch in Beverly Hills, California, on March 13, 2023.

    Lauren Justice | Bloomberg | Getty Images

    Most millionaires — 63% — support Congress raising FDIC coverage limits following the recent failures of Silicon Valley Bank and Signature Bank earlier this year, a new CNBC survey finds.

    The survey found the wealthiest millionaires are most supportive of raising those limits, with 67% of those with $5 million or more in assets, according to CNBC’s Millionaire Survey, which was conducted online in April.

    The survey included 764 respondents with $1 million or more in investable assets.

    Currently, the Federal Deposit Insurance Corp. insures $250,000 per depositor for each ownership category for deposits held at an insured bank.

    More from FA Playbook:

    Here’s a look at other stories impacting the financial advisor business.

    FDIC basic coverage limits were last changed in response to the financial crisis of 2008.

    That year, the standard maximum deposit insurance amount was temporarily raised to $250,000, from $100,000. Congress made that change permanent in 2010.

    Since then, the $250,000 coverage level has remained unchanged.

    The March failures of Silicon Valley Bank and Signature Bank — and early May takeover of First Republic — have prompted renewed focus on whether the FDIC’s current coverage should be updated.

    How future deposit insurance may change

    The FDIC in May released a report that outlined three options for the future of the deposit insurance system.

    That includes a first option of limited coverage, which would maintain the current structure with a “finite” deposit insurance limit across all depositors and types of accounts. This may include an increased, yet also “finite,” deposit insurance limit, the FDIC’s report states.

    Alternatively, a second reform option could usher in unlimited coverage with no limits.

    A third choice, targeted coverage, would provide different levels of deposit insurance coverage for different types of accounts, with higher coverage for business payment accounts.

    In May, FDIC Chairman Martin Gruenberg spoke positively of the third option when testifying before the Senate Banking Committee.

    “Targeted coverage for business payment accounts captures many of the financial stability benefits of expanded coverage while mitigating many of the undesirable consequences,” Gruenberg wrote in his written testimony.

    Providing higher coverage on business accounts would increase financial stability because it would help limit the risk for spillovers from uninsured deposits associated with business accounts, he noted.

    Notably, congressional action would be required for any expansion of FDIC insurance.

    How investors can boost FDIC coverage now

    Because it has been so long since the current $250,000 coverage limit has been raised, some argue it is time to lift it once again.

    “At a minimum, I would think it would be $500,000 just to deal with inflation, and I think the FDIC may need to consider that over time,” said Ted Jenkin, a certified financial planner and e CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta.

    Jenkin, a member of the CNBC Financial Advisor Council, said that when Silicon Valley Bank collapsed, people were contacting his firm to find out the best way to maximize their FDIC insurance.

    “Most people generally speaking don’t have millions of dollars of cash in the bank,” Jenkin said.

    At a minimum, I would think it would be $500,000 just to deal with inflation.

    Ted Jenkin

    CEO of oXYGen Financial

    As of December, more than 99% of deposit accounts were under the $250,000 deposit insurance limit, according to the FDIC.

    “But in the millionaire class, there are a lot of people now that may be sitting on $1 [million], $2 [million], $3 million in the bank,” he said.

    One of the biggest mistakes people make is to open up more bank accounts with the intention of amplifying their FDIC coverage on those deposits, Jenkin said.

    Instead, they may access higher levels of coverage if they add more beneficiaries — for example, their children — to those accounts, he said.

    Millionaires are betting on higher rates and a weaker economy, CNBC survey says

    Every beneficiary added brings another $250,000 in coverage, based on today’s limits.

    But one caution is that the way bank accounts are titled will supersede your will, Jenkin said.

    Investors may also amplify the amount of insured balances by having different kinds of accounts, such as savings accounts, individual retirement accounts or trust accounts.

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  • ‘Hurricane has landed:’ Activist investor Jonathan Litt doubles down on office space short

    ‘Hurricane has landed:’ Activist investor Jonathan Litt doubles down on office space short

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    A major activist investor is betting stalled return-to-office plans will stir up more trouble in commercial real estate.

    Land and Buildings’ Jonathan Litt has been shorting REITs with high office space exposure for three years, and he has no plans to shift gears.

    “If you have no rent growth and your vacancies are going up and you have giant operating expenses to run an office building, you’re going backwards fast,” the firm’s chief investment officer told CNBC’s “Fast Money” on Tuesday.

    Litt first warned Wall Street an “existential hurricane” was about to hit the sector in May 2020. Now, he’s saying the “hurricane has landed.”

    He’s doubling down on the call — citing spiking interest rates and high inflation. Litt calls them two factors he didn’t anticipate when he first started shorting these companies in May 2020.

    DC-based JBG Smith Properties is one of Litt’s major shorts. It’s down 58% since the World Health Organization declared Covid-19 as a pandemic on March 11, 2020. So far this year, JBG Smith is off 20%.

    “Washington, DC is one of the toughest markets in the country today,” noted Litt. “They have a substantial office portfolio.”

    He adds the crackdown on lending is compounding the problems.

    “This isn’t a work from home story anymore. This is a financing story. It’s kind of like them mall business went from the mall problem to the financing problem,” Litt said. “Now, it’s a financing problem. And as these debts come due, there’s really nowhere to go because lenders aren’t lending to the space.”

    JBG Smith did not immediately respond to a request for comment.

    Disclaimer

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  • Buy this resilient regional bank trading at a 50% discount, Bank of America says

    Buy this resilient regional bank trading at a 50% discount, Bank of America says

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  • CNBC Daily Open: Farewell for now, default fears

    CNBC Daily Open: Farewell for now, default fears

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    The US Treasury Department building is seen in Washington, DC, January 19, 2023.

    Saul Loeb | Afp | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    Progress on U.S. debt ceiling talks and a sign of health at one regional bank gave markets the confidence to rally Wednesday.

    What you need to know today

    • U.S. markets rose Wednesday as investors hoped U.S. lawmakers manage to reach a deal on the country’s debt ceiling. Asia-Pacific stocks traded higher Thursday on the back of that optimism. Japan’s Topix Index rose 1.1%, its third straight day of increase, as Japan’s trade deficit narrowed by almost half in April.
    • Microsoft CEO Satya Nadella told CNBC’s Andrew Ross Sorkin in a taped interview that society needs to come together to “mitigate the dangers” of artificial intelligence. But Nadella was also optimistic about AI’s impact: He thinks it’ll create new jobs and improve education.
    • PRO Traders expect the Federal Reserve to keep interest rates unchanged when it meets later in June. However, the central bank could enact a “substitute” hike that would keep monetary policy tight, according to Evercore ISI.

    The bottom line

    Progress on U.S. debt ceiling talks and a sign of health at one regional bank gave markets the confidence to rally Wednesday.

    U.S. leaders from both sides of the political spectrum expressed hope that the country will avert a sovereign debt crisis, which could come in as little as two weeks, if U.S. Treasury Secretary Janet Yellen’s warning of a June 1 deadline comes true. Though neither Biden nor McCarthy offered concrete details on a deal, their comments were markedly more positive than those on Monday, when McCarthy told NBC News both sides are still “far apart.”

    Adding to yesterday’s positive sentiment, regional bank Western Alliance reported that customer deposits have grown by more than $2 billion throughout the current quarter. Analysts and investors cheered the news. Shares of the bank jumped 10.2% and helped to lift the sector. PacWest, another regional bank, surged 21.7%, while the broader SPDR S&P Regional Banking ETF (KRE) rose 7.4%.

    Technology stocks rallied yesterday, possibly because of diminishing fears of a debt crisis and positive sentiment from Tesla, which climbed 4.4% after the company’s shareholder meeting. The Technology Select Sector SPDR Fund (XLK) rose 1.2%, hitting a 52-week high for the third straight day.

    Major stock indexes benefited from those rises. The Dow Jones Industrial Average closed 1.24% higher, the Nasdaq Composite added 1.28% and the S&P 500 rose 1.19%.

    But the S&P might be too reliant on tech stocks, Mizuho warned. Simply put, without Big Tech stocks, the S&P 500 would be down for the year. That implies that if Big Tech experiences a downturn — as it did last year — then the S&P would tumble pretty quickly.

    Still, the future is bright for now. Goldman Sachs’ Senior Strategist Ben Snider told CNBC AI could increase the profits of S&P companies by 30% — with technology sector being the immediate winner. Fears averted for another day.

    Subscribe here to get this report sent directly to your inbox each morning before markets open.

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  • CNBC Daily Open: Goodbye for now, default fears

    CNBC Daily Open: Goodbye for now, default fears

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    The south facade of the White House in Washington DC, United States on April 21, 2022.

    Yasin Ozturk | Anadolu Agency | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    Progress on U.S. debt ceiling talks and a sign of health at one regional bank gave markets the confidence to rally Wednesday.

    What you need to know today

    • UBS expects to incur $17 billion in costs from its emergency takeover of Credit Suisse. However, UBS also expects to gain $34.8 billion from “negative goodwill,” which refers to the acquisition of assets at a price below what they’re worth.
    • Microsoft CEO Satya Nadella told CNBC’s Andrew Ross Sorkin in a taped interview that society needs to come together to “mitigate the dangers” of artificial intelligence. But Nadella was also optimistic about AI’s impact: He thinks it’ll create new jobs and improve education.
    • PRO Traders expect the Federal Reserve to keep interest rates unchanged when it meets later in June. However, the central bank could enact a “substitute” hike that would keep monetary policy tight, according to Evercore ISI.

    The bottom line

    Progress on U.S. debt ceiling talks and a sign of health at one regional bank gave markets the confidence to rally Wednesday.

    U.S. leaders from both sides of the political spectrum expressed hope that the country will avert a sovereign debt crisis, which could come in as little as two weeks, if U.S. Treasury Secretary Janet Yellen’s warning of a June 1 deadline comes true. Though neither Biden nor McCarthy offered concrete details on a deal, their comments were markedly more positive than those on Monday, when McCarthy told NBC News both sides are still “far apart.”

    Adding to yesterday’s positive sentiment, regional bank Western Alliance reported that customer deposits have grown by more than $2 billion throughout the current quarter. Analysts and investors cheered the news. Shares of the bank jumped 10.2% and helped to lift the sector. PacWest, another regional bank, surged 21.7%, while the broader SPDR S&P Regional Banking ETF (KRE) rose 7.4%.

    Technology stocks rallied yesterday, possibly because of diminishing fears of a debt crisis and positive sentiment from Tesla, which climbed 4.4% after the company’s shareholder meeting. The Technology Select Sector SPDR Fund (XLK) rose 1.2%, hitting a 52-week high for the third straight day.

    Major stock indexes benefited from those rises. The Dow Jones Industrial Average closed 1.24% higher, the Nasdaq Composite added 1.28% and the S&P 500 rose 1.19%.

    But the S&P might be too reliant on tech stocks, Mizuho warned. Simply put, without Big Tech stocks, the S&P 500 would be down for the year. That implies that if Big Tech experiences a downturn — as it did last year — then the S&P would tumble pretty quickly.

    As Mizuho’s note put it, “For our sake, hope [Big Tech companies] hold.”

    Subscribe here to get this report sent directly to your inbox each morning before markets open.

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  • European banks’ business model is ‘safe and sound’: Intesa Sanpaolo CEO

    European banks’ business model is ‘safe and sound’: Intesa Sanpaolo CEO

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    Carlo Messina, CEO at Intesa Sanpaolo, weighs in on the outlook for European banks, which he says are in a different situation to their counterparts in the U.S., and have a solid business model and are supported by central bank supervision.

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  • A.I. trade is leaving investors vulnerable to painful losses: Evercore

    A.I. trade is leaving investors vulnerable to painful losses: Evercore

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    The artificial intelligence trade may be leaving investors vulnerable to significant losses.

    Evercore ISI’s Julian Emanuel warns Big Tech concentration in the S&P 500 is at extreme levels.

    “The AI revolution is likely quite real, quite significant. But… these things unfold in waves. And, you get a little too much enthusiasm and the stocks sell off,” the firm’s senior managing director told CNBC’s “Fast Money” on Monday.

    In a research note out this week, Emanuel listed Microsoft, Apple, Amazon, Nvidia and Alphabet as concerns due to clustering in the names.

    “Two-thirds [of the S&P 500 are] driven by those top five names,” he told host Melissa Lee. “The public continues to be disproportionately exposed.”

    Emanuel reflected on “odd conversations” he had over the past several days with people viewing Big Tech stocks as hiding places.

    “[They] actually look at T-bills and wonder whether they’re safe. [They] look at bank deposits over $250,000 and wonder whether they’re safe and are putting money into the top five large-cap tech names,” said Emanuel. “It’s extraordinary.”

    It’s particularly concerning because the bullish activity comes as small caps are getting slammed, according to Emanuel. The Russell 2000, which has exposure to regional bank pressures, is trading closer to the October low.

    For protection against losses, Emanuel is overweight cash. He finds yields at 5% attractive and plans to put the money to work during the next market downturn. Emanuel believes it will be sparked by debt ceiling chaos and a troubled economy over the next few months.

    “You want to stay in the more defensive sectors. Interestingly enough with all of this AI talk, health care and consumer staples have outperformed since April 1,” Emanuel said. “They’re going to continue outperforming.”

    Disclaimer

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  • CNBC Daily Open: Investors liked April’s jobs growth

    CNBC Daily Open: Investors liked April’s jobs growth

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    A ‘Now Hiring’ sign posted outside of a restaurant looking to hire workers on May 05, 2023 in Miami, Florida.

    Joe Raedle | Getty Images News | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    Investors liked April’s jobs growth.

    What you need to know today

    • U.S. markets jumped Friday as Apple shares popped and regional bank stocks recovered. Asia-Pacific stocks mostly traded higher Monday. China’s Shanghai Composite rose 1.6% even as economists expect the country’s trade surplus to decrease slightly from March to April.
    • If the White House fails to raise the debt ceiling, there will be a “steep economic downturn” and “economic chaos will ensue,” U.S. Treasury Secretary Janet Yellen warned on Sunday. The U.S. might hit its debt ceiling as early as June 1.
    • PRO During Berkshire’s meeting, Buffett shared his favorite stocks. One of them is a “better business than any we own,” Buffett said. Another is “one of the best-managed and important companies in the world” — yet Buffett decided to sell shares in it. Here’s why.

    The bottom line

    A strong jobs reading, a note from JPMorgan and an optimistic earnings report from Apple buoyed U.S. markets Friday.

    The gains made by stocks were impressive — especially after the previous few days of renewed banking fears — so let’s start with them. The Dow Jones Industrial Average added 1.65%, the S&P 500 rose 1.85% and the Nasdaq Composite jumped 2.25%.

    The tech-heavy Nasdaq’s jump is straightforward: Apple shares leaped 4.7% after the company reported better-than-expected earnings and revenue Thursday. Other Big Tech companies, like Microsoft and Amazon, rose alongside Apple.

    Broader markets were boosted by April’s jobs report, which showed a higher-than-expected increase in jobs growth and an unemployment rate of 3.4% — a record low since 1969.

    Markets’ reaction might seem confusing at first. A tight labor market implies the Federal Reserve might continue raising interest rates. Generally speaking, that’s bad for markets. Recall January’s jobs report: There were 517,000 new jobs in December, almost three times the forecast. Markets fell on the news.  

    Yet this time, markets rallied, suggesting that the worry gripping traders is one of recession, not inflation. A strong jobs market increases the probability that the U.S. economy can tame inflation without contracting too severely.

    Indeed, there are signs the U.S. economy has been slowing. At the end of April, we learned that GDP rose at an annualized 1.1% pace in the first quarter, about half of what analysts had estimated. The banking crisis — resurrected by First Republic’s failure — is spreading again, causing banks to lend less and ultimately slow growth even further.

    There’s good news on that front, however. On Friday, banking titan JPMorgan Chase upgraded three regional bank stocks to “overweight,” saying that Western Alliance, Zions Bancorp and Comerica were all “substantially mispriced” — as I had argued in Friday’s edition of this newsletter.

    Investors digested the note and pushed the SPDR S&P Regional Banking ETF (KRE) up 6.3%. Individual bank stocks saw more drastic jumps: PacWest surged 81.7% and Western Alliance popped 49.2%.

    But make no mistake: This isn’t a sign that banking fears have been put to rest definitively. If stocks can swing so drastically in one direction on the back of a note, they can do so in the other at the faintest whisper of trouble. What we’re seeing isn’t renewed confidence, but continued volatility.

    Subscribe here to get this report sent directly to your inbox each morning before markets open.

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  • CNBC Daily Open: Investors like jobs growth

    CNBC Daily Open: Investors like jobs growth

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    A ‘Now Hiring’ sign posted outside of a restaurant looking to hire workers on May 05, 2023 in Miami, Florida.

    Joe Raedle | Getty Images News | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    Investors like jobs growth.

    What you need to know today

    • U.S. markets jumped Friday as Apple shares popped and regional bank stocks recovered. Europe’s Stoxx 600 rose 1.1% — Adidas, with an 8.9% surge, was a big winner in the index.
    • If the White House fails to raise the debt ceiling, there will be a “steep economic downturn” and “economic chaos will ensue,” U.S. Treasury Secretary Janet Yellen warned on Sunday. The U.S. might hit its debt ceiling as early as June 1.
    • PRO During Berkshire’s meeting, Buffett shared his favorite stocks. One of them is a “better business than any we own,” Buffett said. Another is “one of the best-managed and important companies in the world” — yet Buffett decided to sell shares in it. Here’s why.

    The bottom line

    A strong jobs reading, a note from JPMorgan and an optimistic earnings report from Apple buoyed U.S. markets Friday.

    The gains made by stocks were impressive — especially after the previous few days of renewed banking fears — so let’s start with them. The Dow Jones Industrial Average added 1.65%, the S&P 500 rose 1.85% and the Nasdaq Composite jumped 2.25%.

    The tech-heavy Nasdaq’s jump is straightforward: Apple shares leaped 4.7% after the company reported better-than-expected earnings and revenue Thursday. Other Big Tech companies, like Microsoft and Amazon, rose alongside Apple.

    Broader markets were boosted by April’s jobs report, which showed a higher-than-expected increase in jobs growth and an unemployment rate of 3.4% — a record low since 1969.

    Markets’ reaction might seem confusing at first. A tight labor market implies the Federal Reserve might continue raising interest rates. Generally speaking, that’s bad for markets. Recall January’s jobs report: There were 517,000 new jobs in December, almost three times the forecast. Markets fell on the news.  

    Yet this time, markets rallied, suggesting that the worry gripping traders is one of recession, not inflation. A strong jobs market increases the probability that the U.S. economy can tame inflation without contracting too severely.

    Indeed, there are signs the U.S. economy has been slowing. At the end of April, we learned that GDP rose at an annualized 1.1% pace in the first quarter, about half of what analysts had estimated. The banking crisis — resurrected by First Republic’s failure — is spreading again, causing banks to lend less and ultimately slow growth even further.

    There’s good news on that front, however. On Friday, banking titan JPMorgan Chase upgraded three regional bank stocks to “overweight,” saying that Western Alliance, Zions Bancorp and Comerica were all “substantially mispriced” — as I had argued in Friday’s edition of this newsletter.

    Investors digested the note and pushed the SPDR S&P Regional Banking ETF (KRE) up 6.3%. Individual bank stocks saw more drastic jumps: PacWest surged 81.7% and Western Alliance popped 49.2%.

    But make no mistake: This isn’t a sign that banking fears have been put to rest definitively. If stocks can swing so drastically in one direction on the back of a note, they can do so in the other at the faintest whisper of trouble. What we’re seeing isn’t renewed confidence, but continued volatility.

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  • CNBC Daily Open: Trading on fear, not fundamentals

    CNBC Daily Open: Trading on fear, not fundamentals

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    A Pacific Western Bank branch in Los Angeles, California, US, on Friday, March 10, 2023.

    Eric Thayer | Bloomberg | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    U.S. regional banks continued falling Thursday even though their deposits have been increasing.

    What you need to know today

    • Apple reported a 3% year-over-year drop in both revenue and net income to $94.84 billion and $24.16 billion, respectively, for the quarter ended April 1. Both numbers, however, beat Wall Street expectations, buoyed by growth in iPhone sales. CEO Tim Cook is optimistic about Apple’s prospects in Asia, and the company’s shares rose 2.3% in extended trading.
    • Markets in the U.S. traded lower Thursday, with all major indexes ending the day in the red — though futures ticked up following the release of Apple’s earnings after the bell. Asia-Pacific stocks traded mixed Friday. Hong Kong’s Hang Seng Index led gains in the region, rising 0.6%, as its IPO market shows signs of life — albeit weak ones (more on that below).

    The bottom line

    Fears of fragility in the U.S. banking sector are spreading.

    Regional bank stocks continued tumbling Thursday; shares of PacWest and Western Alliance were halted more than once. The SPDR S&P Regional Bank ETF (KRE) fell 5.5%. At one point on Thursday, every stock in the KRE traded lower as investors sold off regional banks.

    It’s not just investors who are worried about banks’ health. Consumers — many of whom do not trade stocks — share the same sentiment. A Gallup survey found that half of respondents polled were “very worried” or “moderately worried” about the safety of their bank deposits — a proportion last seen during the 2008 financial crisis.

    Against such a backdrop — and fresh off a quarter percentage point rate hike by the Federal Reserve on Wednesday — markets, unsurprisingly, didn’t do well. The Dow slid 0.86%, the S&P 500 lost 0.72% and the Nasdaq fell 0.49%. That’s the fourth consecutive day all major indexes fell.

    But some analysts and bankers think the tumult is caused by fear more than analysis. (Though this is not to argue against the idea markets are, largely, driven by psychology.)

    Evercore ISI’s John Pancari, for instance, wrote the advisory firm is confident about the “liquidity and capital levels at banks post 1Q.” Indeed, PacWest said its deposits grew $1.8 billion from March 20 to April 24; Western Alliance also reported that its deposits have increased since the end of March.

    But Pancari warned bank valuations could still collapse because of a “self-fulfilling prophecy,” where investors, fearing the collapse of banks, actually trigger the process as they flee.

    Or, as Peter McGratty, head of U.S. bank research at KBW, put it, “We’re in this situation that feels a lot like March, where we’re trading stocks on fear … not fundamentals.” And that’s particularly scary today, when SVB’s failure in March showed how fears can spread near instantly on social media and cause a bank to collapse in merely 36 hours.

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  • CNBC Daily Open: Fear, not fundamentals

    CNBC Daily Open: Fear, not fundamentals

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    A “For Lease” sign at a Pacific Western Bank branch in Los Angeles, California, US, on Friday, March 10, 2023.

    Eric Thayer | Bloomberg | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    U.S. regional banks continued falling Thursday even though their deposits have been increasing.

    What you need to know today

    • Apple reported a 3% year-over-year drop in both revenue and net income to $94.84 billion and $24.16 billion, respectively, for the quarter ended April 1. Both numbers, however, beat Wall Street expectations, buoyed by growth in iPhone sales. CEO Tim Cook is optimistic about Apple’s prospects in Asia, and the company’s shares rose 2.3% in extended trading.
    • Markets in the U.S. traded lower Thursday, with all major indexes ending the day in the red — though futures ticked up following the release of Apple’s earnings after the bell. Europe’s Stoxx 600 index lost 0.5% after the European Central Bank raised interest rates (more on that below).

    The bottom line

    Fears of fragility in the U.S. banking sector are spreading.

    Regional bank stocks continued tumbling Thursday; shares of PacWest and Western Alliance were halted more than once. The SPDR S&P Regional Bank ETF (KRE) fell 5.5%. At one point on Thursday, every stock in the KRE traded lower as investors sold off regional banks.

    It’s not just investors who are worried about banks’ health. Consumers — many of whom do not trade stocks — share the same sentiment. A Gallup survey found that half of respondents polled were “very worried” or “moderately worried” about the safety of their bank deposits — a proportion last seen during the 2008 financial crisis.

    Against such a backdrop — and fresh off a quarter percentage point rate hike by the Federal Reserve on Wednesday — markets, unsurprisingly, didn’t do well. The Dow slid 0.86%, the S&P 500 lost 0.72% and the Nasdaq fell 0.49%. That’s the fourth consecutive day all major indexes fell.

    But some analysts and bankers think the tumult is caused by fear more than analysis. (Though this is not to argue against the idea markets are, largely, driven by psychology.)

    Evercore ISI’s John Pancari, for instance, wrote the advisory firm is confident about the “liquidity and capital levels at banks post 1Q.” Indeed, PacWest said its deposits grew $1.8 billion from March 20 to April 24; Western Alliance also reported that its deposits have increased since the end of March.

    But Pancari warned bank valuations could still collapse because of a “self-fulfilling prophecy,” where investors, fearing the collapse of banks, actually trigger the process as they flee.

    Or, as Peter McGratty, head of U.S. bank research at KBW, put it, “We’re in this situation that feels a lot like March, where we’re trading stocks on fear … not fundamentals.” And that’s particularly scary today, when SVB’s failure in March showed how fears can spread near instantly on social media and cause a bank to collapse in merely 36 hours.

    Subscribe here to get this report sent directly to your inbox each morning before markets open.

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  • How to keep your business deposit cash safe during a banking crisis

    How to keep your business deposit cash safe during a banking crisis

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    Pedestrians pass in front of an automatic teller machine (ATM) at a First Republic Bank branch in Los Angeles, California, U.S.

    Bloomberg | Bloomberg | Getty Images

    You might think that small businesses, which are more likely than the average depositor to have accounts above the federal deposit insurance limit of $250,000, might be uneasy about the U.S. banking system. And you would be right.

    The past two months have been rough on the U.S. banking system: Three fast-growing regional banks failed in succession when depositors lost confidence in the banks’ stability and yanked their money, culminating in the over $100 billion pulled from First Republic Bank and eventual sale to JPMorgan. JPMorgan CEO Jamie Dimon declared “this part of the crisis is over” after his bank’s deal, but the volatility in regional banking stocks continued on Thursday, with shares of PacWest plunging.

    But small business owners have other worries on their minds when it comes to financial relationships and risks. For one, higher interest rates and more difficulty getting access to capital including loans to grow. And at a time of higher prices on many core business inputs, a rush to switch financial institutions as part of risk management, even with the best of intentions, could lead them to overpay in bank account fees and sacrifice valuable, high-touch relationships.

    Right now, small business owners are split about evenly between those who express confidence in America’s banking system and those who do not (49% vs. 50%), according to the Q2 CNBC|SurveyMonkey Small Business Survey released on Thursday morning. A majority (62%) say they are confident their business capital is secure. But fewer (53%) say it is easy for them to access the capital needed for their business to operate. With lending expected to tighten further in the wake of the three banks’ failures, and another interest rate hike by the Federal Reserve on Wednesday pushing business loans firmly into double-digit percentage territory for many borrowers, the worries will persist.

    Kirsten Quigley, the CEO of Lunchskins, a Bethesda, Md.-based small business that sells environmentally friendly sandwich bags, said the interest rates on the loans Lunchskins uses for working capital have more than doubled in the past year. “When you’re funding your growth with that kind of debt. It really takes a toll on your cash flow,” said Quigley.

    The regional bank she uses, Eagle Bank, isn’t anywhere near the “too big to fail” category.

    But she values the personal attention she gets for her firm, which was founded in 2008 and is now in more than 13,000 grocery stores nationwide, including Walmart, Target and Kroger. In March, the CEO of the Bethesda-based Eagle Bank, which has 14 locations, sent a note to its customers assuring them that it has ample reserves. “It’s a physical office and physical person,” Quigley said. “When I call, they call back.”

    Small businesses can feel like they’re up against a wall. They don’t have the leverage of a big business to negotiate a special deal on interest rates and fees, or the luxury of time to keep moving their financial services around.

    But there are steps small businesses can take to manage their financial services relationships that balance risks, costs and time.

    Always keep up on interest rate offers.

    Quigley keeps tabs on the interest rates, so she knows that while rates are high, what she gets from her local bank is competitive.

    According to the CNBC survey, small business owners are almost evenly split across banking institutions by size. About 40% of small business owners say they do their business banking with a large bank. Almost equal percentages work with regional banks (31%) and community banks (32%).

    Safety of deposits is a concern, but not a huge one.

    Safety is a concern, and the PacWest headlines are sending more jitters through the market, but overall, national banking system data shows that the deposit safety issue is a shrinking one. In the wake of the three bank failures, some depositors pulled money from smaller and regional banks and put them into larger banks. But the outflows stabilized by the end of April, down only about 1% at the 850 smallest banks, according to the Federal Reserve Board of Governors deposits data.

    The CNBC survey finds that the majority of business owners (71%) do not plan to open new accounts in the next year, while 43% say they’re moving money from one account to another about as frequently as they were a year ago.

    Bank size does matter to business owners.

    That doesn’t mean there’s no distinction being made by owners based on bank size. When asked if it is easy to access necessary capital right now, the percentages go down by large bank client (59%) to regional bank client (56%) to community bank client (50%), according to the survey. And there is a similar small it noticeable trend line on confidence that their business capital is secure: 67% among large bank clients; 66% among regional bank clients; and 60% among community bank clients.

    “There is a run to larger banks,” said Eleni Delimpaltadaki Janis, CEO of Equivico, an impact investment firm that provides capital to responsible lenders to increase fair lending to underserved small businesses.

    Big banks aren’t necessarily the best choice.

    Delimpaltadaki Janis doesn’t think the biggest banks are the best choice for the majority of small businesses. “That’s not who they’re interested in banking,” she said.

    In fact, the CNBC survey that among the minority of business owners who do plan to open a new account in the next year, they are almost evenly split between planning to do so with a large (30%), and regional or community bank (28%).

    “On the other side, you must protect your money,” Delimpaltadaki Janis said.

    She advises small businesses worried about safety to look for a bank that offers an insured cash sweep account. If your balance exceeds the $250,000 federal insurance cap, money will be automatically moved into other institutions, multiplying your cap by two to five times.

    It’s worth noting that, in the wake of the three bank failures, the Federal Deposit Insurance Corp. recommended that the federal government expand its insurance program for business accounts.

    There’s not much a small business can do about the rising interest rate environment. But you can look for banks that are more likely to approve your loan or an expansion in the first place, or work with you to find the right credit line. Small business owners say emotional support and the time savings of being able to reach people is a under-valued commodity.

    “I bank with CommunityAmerica Credit Union,” said Isaac Collins, who owns three Yogurtini franchises in Kansas City, Missouri, by email. “It’s a local credit union here in KC and I LOVE my experience with them. … I have an entire team that I can reach out to serve me in whatever area I want without even going into a local branch. That buys a lot of my time back since I’m so busy!”

    Review a bank’s loan approval rates.

    If you sever your ties with a smaller bank in the interests of safely, you might make it less likely that you’re approved for a loan. Even though more small businesses apply at a large bank for a loan at a higher rate than any other, small banks and alternative lenders, including online lenders, approve loans at higher rate than large banks, according to the Federal Reserve’s Small Business Credit Survey 2023. Some 82% of loans were approved at small banks, versus 68% at the 25 largest banks. Online lenders and finance companies were in between, at 76% and 71%, respectively.

    Be wary of credit card offers as loan replacement.

    In a higher interest-rate environment, banks are more likely to try to sell credit card financing to small businesses. There are valuable offers to be had; some bank credit cards offer travel and cash rewards. But in the current rate environment which has seen the Fed raise its benchmark rates from 0% to 5% in a year, credit card debt can come at interest rates topping 25% annually. “Credit cards can be expensive – in a rising interest rate environment they will be especially so,” said Andy Schmidt, vice president and global industry banking lead for CGI, a Montreal-based IT and business consulting firm. “One does need to be careful.”

    Seek interest on cash accounts.

    Everyone is chasing higher interest rates on accounts right now. That’s not a business owner phenomenon specifically, with individual savers fleeing low-yielding big bank deposit accounts for money market funds and other higher-yielding offers in the 4% to 5% range as long as they can lock up money for longer without a liquidity issue. According to one recent estimate offered on CNBC, as much as $1 trillion could move out of bank deposit accounts yet, not for safety concerns, but as investors and savers seek higher yields.

    For business owners who might not have the leverage to lower the interest rate on debt or a working credit line, the flexibility of financial offerings today and the ease of moving money between financial institutions — which the Silicon Valley Bank run proved — is a reason to seek a higher interest rate on the cash you maintain in accounts. As a small business, you might have tens or hundreds of thousands of dollars on average in your accounts; that money can be earning interest of as much as 4%, Schmidt said.

     

     

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  • Further turmoil likely ahead for regional banks, economist says

    Further turmoil likely ahead for regional banks, economist says

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    Rupert Thompson, chief economist at Kingswood Group, assess the outlook for the economy and says that further turmoil is likely ahead for regional banks, but that the Fed has taken measures to contain risks to the broader economy.

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  • PacWest falls more than 20% as regional bank stocks slide to new lows

    PacWest falls more than 20% as regional bank stocks slide to new lows

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    A Pacific Western Bank branch in Los Angeles, California, US, on Friday, March 10, 2023.

    Eric Thayer | Bloomberg | Getty Images

    Regional bank stocks fell sharply Tuesday as the fallout from the third major bank failure this year continued to put pressure on the sector.

    Shares of PacWest fell nearly 28% on Tuesday and was on track for its fourth-straight negative session. The stock was halted for volatility multiple times.

    Stock Chart IconStock chart icon

    PacWest’s stock fell again on Tuesday.

    The California-based bank was not the only regional lender under pressure. Shares of Western Alliance dropped 15%. The SPDR S&P Regional Banking ETF (KRE) sank 6.3%.

    The steep declines deepened losses in the sector from Monday. Over the weekend, regulators seized troubled regional bank First Republic and sold it to JPMorgan Chase.

    First Republic is the third failure of a large regional bank this year, following Silicon Valley Bank and Signature Bank in March.

    The reasons for Tuesday’s declines were not immediately clear. JPMorgan Chase CEO Jamie Dimon said Monday that the initial phase of the regional bank crisis was “over,” and there was cautious optimism among Wall Street analysts that the deposit flight issues had been contained.

    First Republic reported a decline in deposits of about 40% during the first quarter, raising questions about how the bank could survive on its own.

    Most other regional banks reported smaller deposits declines, however, and some, such as PacWest, reported that deposits began rebounding in late March.

    The recent bank failures and expected regulatory changes in response to them have also raised questions about the long-term profit outlooks for mid-sized regional banks.

    “We believe that banks with assets >$500B and <$60B are the clearest winners in the new world order, while there is likely to be a no-man’s land between $80-120B, as banks in this range may need to shrink to avoid new regulations or more actively engage in M&A to increase scale and absorb regulatory costs,” KBW analyst David Konrad said in a note to clients Sunday.

    Another issue for the regional banks is the possibility of more Fed rate hikes. Higher rates will make it more costly for the banks to hold on to their deposits while also lowering the market value of the long-dated bonds and loans on their books.

    Concern about the market value of those assets was one of the sparks for the initial run on Silicon Valley Bank in March.

    The central bank is expected to raise its benchmark rate by 0.25 percentage points Wednesday.

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  • CNBC Daily Open: A regional bank casts a shadow over Big Tech

    CNBC Daily Open: A regional bank casts a shadow over Big Tech

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    A pedestrian walks by a First Republic bank on April 26, 2023 in San Francisco, California.

    Justin Sullivan | Getty Images News | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    Big Tech continues its winning streak, but it wasn’t enough to ignite a broader rally in markets because of fears reignited by First Republic.

    What you need to know today

    • First Republic Bank has a plan to save itself, CNBC learned from sources. Advisors to First Republic are persuading big U.S. banks to buy bonds from First Republic at above-market prices. Though those big banks will lose money on the purchase, their losses would be much lower than the Federal Deposit Insurance Corp. fees banks would have to pay if First Republic fails.
    • Meanwhile, First Republic’s stock continued its freefall. It plummeted 29.75% Wednesday to hit an all-time low of $5.69, giving the bank a market value below $1 billion.
    • Still, the global banking sector looks mostly solid, at least for big banks. Deutsche Bank reported a net profit attributable to shareholders of 1.158 billion euros, which was a 9.2% increase from a year earlier. That’s the 11th straight quarter of profit for the German bank — though it’s joining other companies in laying off workers because of falling revenue.
    • U.S. stocks ended Wednesday mixed as First Republic’s troubles overshadowed excitement about Big Tech earnings. Asia-Pacific markets traded higher Thursday. Singapore’s Straits Times Index lost 0.39%, weighed down by real estate stocks, as the country increased stamp duties on property purchases.
    • PRO First-quarter economic growth in the U.S. is likely to hit at least 2% year on year, according to analysts’ projections. Despite that solid number, there are signals that a recession is still coming.

    The bottom line

    Big Tech continues its winning streak, but it wasn’t enough to ignite a broader rally in markets.

    On Wednesday, Microsoft rallied 7.24% on the back of a strong earnings report that was boosted by a jump in revenue from its Intelligent Cloud business segment. The tech company’s stock hit a 52-week high, putting it within a hair’s breadth of $300 per share. Amazon climbed 2.35% as investors hoped the e-commerce giant, which is the market leader in cloud services, would post strong numbers Thursday too.

    Still, the tech-heavy Nasdaq Composite finished the day only 0.47% higher. (Meta, which also had an excellent first quarter, posted earnings after markets closed.)

    Why didn’t the Nasdaq rise more from Big Tech’s better-than-expected first-quarter results? Probably because tech stocks were already doing so well.

    “There was such a rally into their earnings season that I think you needed earnings to really clear a high bar to actually catalyze another leg higher,” said Ross Mayfield, investment strategy analyst at Baird. “That just hasn’t been the case, especially when you have other headwinds pressing down on the market.”

    Indeed, fears around First Republic induced losses in other major indexes. The Dow Jones Industrial Average lost 0.68% and the S&P slipped 0.38%.

    Banks might not be as exciting as technology companies. But banks are so fundamental to the health of the economy that any sign of weakness in one is enough to send waves of fear throughout investors and make them forget, if only temporarily, the promises of Big Tech. What use is there, after all, in building a skyscraper if the foundation is shaky?

    Subscribe here to get this report sent directly to your inbox each morning before markets open.

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  • CNBC Daily Open: A regional bank overshadows Big Tech

    CNBC Daily Open: A regional bank overshadows Big Tech

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    A pedestrian walks by a First Republic bank on April 26, 2023 in San Francisco, California.

    Justin Sullivan | Getty Images News | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    Big Tech continues its winning streak, but it wasn’t enough to ignite a broader rally in markets because of fears reignited by First Republic.

    What you need to know today

    • First Republic Bank has a plan to save itself, CNBC learned from sources. Advisors to First Republic are persuading big U.S. banks to buy bonds from First Republic at above-market prices. Though those big banks will lose money on the purchase, their losses would be much lower than the Federal Deposit Insurance Corp. fees banks would have to pay if First Republic fails.
    • Meanwhile, First Republic’s stock continued its freefall. It plummeted 29.75% Wednesday to hit an all-time low of $5.69, giving the bank a market value below $1 billion.
    • Meta’s first-quarter revenue rose 3% to $28.65 billion from a year earlier, the first time in three quarters that its sales increased. Adding to the good vibes, the company projected that revenue in the second quarter will come in higher than Wall Street’s expectations.
    • It wasn’t uniformly good news for Meta: Net profit fell 24% to $5.71 billion, year on year, dragged down by the company’s Reality Labs unit — its metaverse division — which recorded an operating loss of $3.99 billion. But that wasn’t enough to dampen investors’ optimism: The company’s stock jumped 11.67% in extended trading.
    • PRO First-quarter economic growth in the U.S. is likely to hit at least 2% year on year, according to analysts’ projections. Despite that solid number, there are signals that a recession is still coming.

    The bottom line

    Big Tech continues its winning streak, but it wasn’t enough to ignite a broader rally in markets.

    On Wednesday, Microsoft rallied 7.24% on the back of a strong earnings report that was boosted by a jump in revenue from its Intelligent Cloud business segment. The tech company’s stock hit a 52-week high, putting it within a hair’s breadth of $300 per share. Amazon climbed 2.35% as investors hoped the e-commerce giant, which is the market leader in cloud services, would post strong numbers Thursday too.

    Still, the tech-heavy Nasdaq Composite finished the day only 0.47% higher. (Meta, which also had an excellent first quarter, posted earnings after markets closed.)

    Why didn’t the Nasdaq rise more from Big Tech’s better-than-expected first-quarter results? Probably because tech stocks were already doing so well.

    “There was such a rally into their earnings season that I think you needed earnings to really clear a high bar to actually catalyze another leg higher,” said Ross Mayfield, investment strategy analyst at Baird. “That just hasn’t been the case, especially when you have other headwinds pressing down on the market.”

    Indeed, fears around First Republic induced losses in other major indexes. The Dow Jones Industrial Average lost 0.68% and the S&P slipped 0.38%.

    Banks might not be as exciting as technology companies. Financial institutions don’t constantly push us into the future, doing things like inventing eerily humanlike programs that chat with us. Instead, banks are doing what they’ve been doing for centuries: accepting deposits from, and loaning money to, people and companies.

    But it’s that very function that makes banks so fundamental to the health of the economy. Any sign of weakness in a bank is enough to send waves of fear throughout investors and make them forget, if only temporarily, the promises of Big Tech.

    Subscribe here to get this report sent directly to your inbox each morning before markets open.

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  • ‘Be mindful of your risk’: Money manager tackles Silicon Valley Bank fallout on ETFs

    ‘Be mindful of your risk’: Money manager tackles Silicon Valley Bank fallout on ETFs

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    There’s speculation the Silicon Valley Bank collapse could expose problems lurking in ETFs tied to specific sectors.

    Astoria Portfolio Advisors CIO John Davi has financials topping his watch list.

    “You need to be mindful of your risk,'” Davi, who runs the AXS Astoria Inflation Sensitive ETF, told CNBC’s “ETF Edge” this week. The fund is an ETF.com 2023 “ETF of the Year” finalist.

    Davi contends the Financial Select Sector SPDR ETF (XLF) could be among the biggest near-term laggards. It tracks the S&P 500 financial index.

    His firm sold the ETF’s positions in regional banks this week and bought larger cap banks, according to Davi. He sees bigger institutions as a more stable, multiyear investment.

    The XLF ended the week more than 3% lower. It’s down almost 8% since the SVB collapse March 10.

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