by tyler | May 12, 2023 | CNN, investing
Economic experts are once again ringing the alarm bells over an imminent downturn. A US recession is coming, they say, in the second half of 2023. That time frame begins less than three weeks from now.
JPMorgan CEO Jamie Dimon warned on Thursday of great economic danger lurking just over the horizon. Given the risks that lie ahead, he told Bloomberg news, “I would take a mild recession happily.”
Billionaire investor Stan Druckenmiller didn’t mince his words this week at the Sohn Investment Conference. A hard landing is coming, he cautioned, and “it’s just naive not to be open-minded to something really, really bad happening.”
For more than a year CEOs, economists, analysts and their kind have been warning of an imminent economic downturn, The economy, meanwhile, has remained relatively resilient through it all.
Things weren’t great last year: Inflation hit a 40-year peak, gas prices were elevated, consumer sentiment plunged and markets fell by 20%. Still, the United States managed to avoid a recession.
“This has been the most predicted potential recession in memory,” said Federal Reserve Bank of Richmond President Tom Barkin way back in January.
So why should we listen now?
There are two reasons, noted Paul Christopher, head of investment strategy at Wells Fargo: Higher interest rates and tightening credit.
The Federal Reserve has raised rates higher and more quickly than they have in decades, and some say that the ongoing US regional banking crisis is an early warning sign of stress on the system.
The Fed’s own experts predicted in March that “the potential economic effects of the recent banking-sector developments,” would lead to “a mild recession starting later this year.”
Bank failures can make borrowing harder, which can curb spending and weigh on economic activity. A Fed survey, released Monday, confirmed that lenders are stiffening their standards in the wake of the banking collapses — demand for and supply of loans is now close to 2008 levels.
“The bottom line for markets is that with inflation still at 5%, well above the [Fed’s] 2% inflation target, and the Fed not cutting rates anytime soon, credit conditions will continue to tighten and, as a result, a recession is coming that could be deeper or longer than the consensus currently expects,” said Torsten Slok, chief economist at Apollo Global Management.
What comes next: The United States is approaching one year since inflation peaked at 9.1% in June of 2022. Historically, recession typically coincides with that peak, said Barry Gilbert, asset allocation strategist for LPL Financial. But that doesn’t mean we’re out of the woods.
If the economy were to go into recession in the second half of the year, we could chalk up the more delayed economic downturn to a Fed that was initially behind the curve in fighting inflation along with monetary policy acting with its typical lag,” said Gilbert. Tailwinds from post-pandemic demand had also contributed to economic resilience, he added.
Dimon sharply criticized former President Donald Trump on Thursday, saying the 2024 presidential candidate doesn’t understand the debt ceiling and what is at stake. It is just “one more thing he doesn’t know very much about,” Dimon told Bloomberg Television.
Trump said in a CNN town hall Wednesday night that a default would be preferable to a result that doesn’t stop the government “spending money like drunken sailors.”
Economists and congressional leaders on both sides of the aisle say an extended default would hurt the US economy, triggering widespread unemployment, surging interest rates and sparking a global downturn.
Defaulting on the US debt would be “potentially catastrophic,” Dimon said Thursday.
“The closer you get to it, you will have panic. Markets will get volatile, maybe the stock market will go down, the Treasury markets will have their own problems,” he said. “This is not good.”
Dimon also expressed concerns that US creditworthiness could be downgraded, as it was during the 2011 debt limit crisis.
Dimon told Bloomberg that he has been hunkering down in a so-called “war room” once a week in order to prepare JPMorgan Chase, the largest bank in the United States, for the possibility of a debt default.
As the June 1 “X-date” approaches — when the US Treasury could run out of cash and extraordinary measures they’re currently using to pay all government obligations — Dimon said he will convene his war room more often. By May 21, he expects to meet every day.
Elon Musk has been vowing to relieve himself of the top position at Twitter for some time. On Thursday, he took a step toward making good on that promise.
“Excited to announce that I’ve a new CEO for X/Twitter. She will be starting in ~6 weeks!” Musk said in a tweet.
But even as Musk prepares to step back from the CEO role, he will likely maintain significant control over the future direction of the company, reports my colleague Clare Duffy. After taking over the company in October, Musk cleared out the C-suite, dissolved the board and became both the CEO and sole director.
Musk has faced criticism for a series of policy changes at Twitter, which often came without clear justification and raised concerns about the impact on Twitter’s users.
Musk — who runs or is involved in numerous other companies, including Tesla
(TSLA) — has also faced criticism from Tesla
(TSLA) shareholders concerned that he is distracted by Twitter.
by tyler | May 9, 2023 | CNN, investing
The financial sector has been churning in rough water since the shocking collapse of Silicon Valley Bank in March.
Now, it appears that two factions on Wall Street, fear-motivated short-sellers and value-based fundamental investors, are locked in a volatile battle over where the sector’s stock prices should settle.
A look back: Last week was rough on US regional banks — shares of mid-sized lenders got crushed as the sale of First Republic Bank
(FRC) and other news triggered fears that the crisis in the sector was far from over.
PacWes
(PACW)t shares lost half their value on Thursday after the California-based lender said it was exploring all strategic options (that means “looking for help” in Wall Street speak). Shares of Arizona’s Western Alliance
(WAL) finished down 39% even after the company denounced a Financial Times report claiming it was considering a sale. Utah’s Zions
(ZION) and Texas’ Comerica
(CMA) also toppled more 12%.
But a sudden rebound jerked stocks higher on Friday; PacWest skyrocketed a staggering 82%. The momentum lasted through the weekend before petering out again on Tuesday – PacWest was down 7% in morning trading and Zions fell more than 1.5%.
They’re definitely on a roller-coaster ride.
So what’s happening?
Meme stock-ing: Some analysts are blaming the wild swings on skittish investors trading on fear and momentum instead of on fundamental values.
“We believe regional banks are suffering from a GameStop-like moment where misinformation circulating on social media is fueling stock price declines that threaten funding and solvency,” Jaret Seiberg, financial services analyst at TD Cowen Washington Research Group, wrote in a note to clients on Thursday.
The Biden administration has pointed fingers at short-sellers who bet against the banks and profited when they fell. White House Press Secretary Karine Jean-Pierre told reporters during Thursday’s press briefing that the administration is “going to closely monitor the market developments, including the short selling pressures…on healthy banks.”
Securities and Exchange Commission Chair Gary Gensler said in a statement that his agency is focused on finding “any form of misconduct” that threatens investors and capital markets.
Value first: Meme-stockification could be the reason that investors dumped these shares, but strong fundamentals are the reason they’ve been able to rebound quickly. No one is going to confuse the regional banks with JPMorgan anytime soon — but they’re not Silicon Valley Bank or even First Republic, either: deposits are steady, and their earnings reports showed promise.
Bank insiders see this and have been buying up shares of regional lenders, according to a report by Timothy Coffey, an analyst at Janney Montgomery Scott.
According to Coffey’s analysis, 53 banking insiders across 18 financial institutions have purchased 334,000 shares worth more than $6 million since March 10, when SVB collapsed.
“Insider purchases of their own stock can be a bullish indicator,” wrote Coffey. “In our opinion, these purchases during extreme market volatility should be interpreted as signs of strength and applauded.”
Investors pay close attention when executives purchase shares of their own company, typically considering it a vote of confidence.
JPMorgan analyst Steven Alexopoulos is also optimistic about the future of regional banking stocks. In a note on Friday he upgraded Western Alliance and Comerica banks to overweight from neutral, and upgraded Zion Bancorp to overweight from underweight.
First-quarter earnings for regional banks weren’t as bad as analysts had feared, he wrote, and “with sentiment this negative, in our view it won’t take much to see a significant intermediate-term favorable re-rating of regional bank stocks.”
Alexopoulos said his team sees the potential for big regulatory changes including increased FDIC insurance levels, a ban on short-selling, and a Fed pivot away from raising interest rates. Those are all good things for regional banks.
“In the meantime, we see the favorable updates coming from select banks that deposit balances have remained stable (or increased) helping to counterbalance very negative sentiment,” he said. “For investors looking to rebalance portfolios, many high quality banks look attractive.”
What comes next: A surge of further bank failures is highly unlikely, but that doesn’t mean the financial sector is going to thrive, either. Banks will have to hike their interest rate payouts to attract wary depositors, said Simeon Hyman, global investment strategist at ProShares. That will limit their profitability.
Warren Buffett also seeded some doubt during his annual Berkshire Hathaway shareholders’ meeting at the weekend. The Oracle of Omaha said he remains cautious about holding bank stocks and that he has reduced his own exposure to the sector. “The incentives in bank regulation are so messed up and so many people have an interest in having them messed up,” he said “It’s totally crazy.”
It’s not just regional lenders; large cap banks are feeling the pain too. Since March 9, the day before Silicon Valley Bank’s fall, the S&P 500 is down by about 3.3%. The S&P 500 financial sector, however, is down more than 12% over the same period.
Last year was bad for credit on all counts as Covid-zero policies in China, Russia’s war on Ukraine and the associated energy crisis and high inflation led to turbulent markets, pushed up borrowing rates and slowed the global economy.
Economists were hoping that this year would bring better news, but instead 2023 brought the collapse of three US regional banks and a subsequent lending squeeze. Bank failures can make borrowing harder, which can curb spending and weigh on economic activity.
The Federal Reserve’s quarterly Senior Loan Officer Opinion Survey (SLOOS), released Monday, confirmed that lenders are stiffening their standards in the wake of the banking collapses.
Survey respondents attributed the changes in lending standards to economic uncertainty, a reduced appetite for risk, deterioration in collateral values and broader concerns about banks’ funding costs and liquidity positions, according to the Fed report.
More bad news: Lenders reported that they expect to tighten standards across all loan categories for the remainder of this year, citing the above concerns as well as customer withdrawals.
“The primary economic implications of the Fed’s lending survey are that cost of capital is increasing which in turn will damp investment, hiring and growth that underscore the current economic expansion,” wrote Joe Brusuelas, chief economic at RSM US in a note. “If lending conditions continue to tighten along the lines implied by this survey the economy would do well to generate barely sub one percent growth in the second half of the year.”
You might remember hearing a lot about recession shapes at the start of the pandemic. That’s because recessions and recoveries come in shapes and sizes as varied as the alphabet. Perhaps that’s why economists have come to name different kinds of economic downturns after letters.
The 2020 recession at the beginning of the pandemic was widely considered to be K-shaped, meaning that separate communities recovered from the economic downturn at varying rates. Some sectors of society experienced renewed growth while others continue to lag behind.
Many who worked in white-collar jobs recovered quickly from the 2020 recession as the government handed out stimulus payments, and stocks and home prices appreciated. Those without savings and who worked service jobs continued to suffer.
Bank of America analyzed credit and debit card spending and found that middle-income consumers (defined as households that earn between $50,000 and $125,000 per year) lagged the average over the pandemic. The money they spent on non-essential goods was particularly soft.
But that’s finally changing. Bank of America found in a new analysis that “there appears to be some signs that discretionary spending for the middle-income group is catching up with the average in 2023.”
In particular, the survey found, “food services, which includes restaurants and bars, showed solid growth for middle-income households, while lodging spending seems to be holding up better for this group than others as well.”
The Six Flags
(SIX) Effect: This rebound in spending could be responsible for a major earnings beat by Six Flags
(SIX) on Monday. The first quarter of the year is typically the worst for the theme park as cold weather limits attendance, but the company announced that revenue rose by 3% to $142 million as guests increased their spending by 7% to $80.88 per person.
by tyler | May 8, 2023 | CNN, investing
When the US Federal Reserve embarked on an aggressive campaign to quash inflation last year, it did so with the goal of avoiding a painful repeat of the 1970s, when inflation spun out of control and economic malaise set in.
Inflation has been sliding, indicating that after 10 consecutive interest rate hikes, the central bank is experiencing some success.
But Gary Richardson, a Federal Reserve historian, is worried policymakers — now contemplating taking a breather — still risk repeating mistakes from that era.
“The more times you pause [rate hikes], the longer the problem is going to go on,” he told me. “That’s a worry here.”
What’s happening: When the Fed met last week, it raised its key interest rate by another quarter of a percentage point, noting that inflation remains “well above” its longer-term goal of 2%.
Yet amid signs of stress in the banking sector that could pile pressure on the economy, it opened the door to keeping rates unchanged when it meets again in June.
“There’s a sense that we’re much closer to the end of this than to the beginning,” Chair Jerome Powell said.
Investors are cheering the notion that borrowing costs may have peaked. Richardson, however, is concerned inflation could surge again should that be the case.
A premature retreat could cause the Fed to lose its handle on the situation, presenting even grimmer options down the road. That’s what happened in the 1970s, he said.
Quick rewind: The chair of the Federal Reserve at the time, Arthur Burns, hiked interest rates dramatically between 1972 and 1974. Then, as the economy contracted, he changed course and started cutting rates.
Inflation later roared back, forcing the hand of Paul Volcker, who took over at the Fed in 1979, Richardson said. Volcker brought double-digit inflation to heel — but only by raising borrowing costs high enough to trigger back-to-back recessions in the early 1980s that at one point pushed unemployment above 10%.
“If they don’t stop inflation now, the historical analogy [indicates] it’s not going to stop, and it’s going to get worse,” said Richardson, an economics professor at University of California, Irvine.
There’s some recent academic debate about whether it’s an oversimplification to cast Burns as foolish and Volcker as a hero. And the US economy looks a lot different now than it did 50 years ago.
But the comparisons reveal the high stakes for the Federal Reserve at a moment of acute uncertainty.
On the radar: The central bank’s aim of taming inflation without causing undue strain is made harder by the fact that the economy continues to produce mixed signals.
Data released Friday showed that US employers added 253,000 jobs in April — a surprise increase at a time when many indicators had been pointing to a slowdown in hiring. That bolsters the case for the Fed to keep hiking, despite hopes to the contrary on Wall Street.
“The strength of the April jobs data on Friday raised risks that future Fed policy will disappoint investors,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note to clients.
Senior US Treasury officials are warning of dire consequences if an agreement is not reached soon to raise the country’s debt ceiling.
“It’s appropriate to have negotiations about the budget, about spending priorities,” Treasury Secretary Janet Yellen said Sunday on ABC’s “This Week.” “But we do need to raise the debt ceiling to avoid economic calamity.”
Coming up: President Joe Biden will hold a much-anticipated meeting with Congressional leaders, including Republican House Speaker Kevin McCarthy, on Tuesday. Yellen has said that unless the debt ceiling is increased, the US won’t be able to pay its bills by early June.
Wally Adeyemo, the deputy Treasury secretary, said Sunday that the uncertainty is already hurting the economic outlook, making it harder for businesses to plan for the future.
“We’re already going to start seeing the impacts on the economy of the fact that Congress hasn’t taken [a default] off the table,” he said.
Watch this space: There has been speculation that Biden could find a constitutional work-around if a divided Congress can’t come to terms. But Yellen said there are “no good options” other than a deal.
“I don’t want to consider emergency options,” she said. “What’s important is the members of Congress recognize what their responsibility is.”
The KBW Regional Banking Index, which tracks mid-size lenders in the United States, plunged 8% last week, its worst showing since the failure of Silicon Valley Bank in March. Yet this week is kicking off on a more optimistic note.
The latest: Shares of PacWest
(PACW) rose 39% in premarket trading on Monday, extending a substantial rally on Friday. The California-based lender said it would slash dividend payments, allowing it to conserve cash.
“Given current economic uncertainty, recent volatility in the banking sector and potential changes in regulatory capital requirements, we view reducing the dividend as a prudent step,” CEO Paul Taylor said in a statement Friday. “Our business remains fundamentally sound.”
Shares of other regional banks, including Zions
(ZION) and Comerica
(CMA), are also up in premarket trading Monday. But given the ongoing volatility, it’s too soon to say the crisis of confidence in the sector has ended.
Remember: The failure of First Republic Bank last week has put investors on edge. JPMorgan Chase
(JPM) bought most of the bank’s assets, protecting depositors, but shareholders were wiped out. That’s sparked a hunt for any other lenders that may be vulnerable.
by tyler | May 8, 2023 | CNN, investing
When the Federal Reserve embarked on an aggressive campaign to quash inflation last year, it did so with the goal of avoiding a painful repeat of the 1970s, when inflation spun out of control and economic malaise set in.
Inflation has been sliding, indicating that after 10 consecutive interest rate hikes, the central bank is experiencing some success.
But Gary Richardson, a Federal Reserve historian, is worried policymakers — now contemplating taking a breather — still risk repeating mistakes from that era.
“The more times you pause [rate hikes], the longer the problem is going to go on,” he told me. “That’s a worry here.”
What’s happening: When the Fed met last week, it raised its key interest rate by another quarter of a percentage point, noting that inflation remains “well above” its longer-term goal of 2%.
Yet amid signs of stress in the banking sector that could pile pressure on the economy, it opened the door to keeping rates unchanged when it meets again in June.
“There’s a sense that we’re much closer to the end of this than to the beginning,” Chair Jerome Powell said.
Investors are cheering the notion that borrowing costs may have peaked. Richardson, however, is concerned inflation could surge again should that be the case.
A premature retreat could cause the Fed to lose its handle on the situation, presenting even grimmer options down the road. That’s what happened in the 1970s, he said.
Quick rewind: The chair of the Federal Reserve at the time, Arthur Burns, hiked interest rates dramatically between 1972 and 1974. Then, as the economy contracted, he changed course and started cutting rates.
Inflation later roared back, forcing the hand of Paul Volcker, who took over at the Fed in 1979, Richardson said. Volcker brought double-digit inflation to heel — but only by raising borrowing costs high enough to trigger back-to-back recessions in the early 1980s that at one point pushed unemployment above 10%.
“If they don’t stop inflation now, the historical analogy [indicates] it’s not going to stop, and it’s going to get worse,” said Richardson, an economics professor at University of California, Irvine.
There’s some recent academic debate about whether it’s an oversimplification to cast Burns as foolish and Volcker as a hero. And the US economy looks a lot different now than it did 50 years ago.
But the comparisons reveal the high stakes for the Federal Reserve at a moment of acute uncertainty.
On the radar: The central bank’s aim of taming inflation without causing undue strain is made harder by the fact that the economy continues to produce mixed signals.
Data released Friday showed that US employers added 253,000 jobs in April — a surprise increase at a time when many indicators had been pointing to a slowdown in hiring. That bolsters the case for the Fed to keep hiking, despite hopes to the contrary on Wall Street.
“The strength of the April jobs data on Friday raised risks that future Fed policy will disappoint investors,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note to clients.
Senior US Treasury officials are warning of dire consequences if an agreement is not reached soon to raise the country’s debt ceiling.
“It’s appropriate to have negotiations about the budget, about spending priorities,” Treasury Secretary Janet Yellen said Sunday on ABC’s “This Week.” “But we do need to raise the debt ceiling to avoid economic calamity.”
Coming up: President Joe Biden will hold a much-anticipated meeting with Congressional leaders, including Republican House Speaker Kevin McCarthy, on Tuesday. Yellen has said that unless the debt ceiling is increased, the US won’t be able to pay its bills by early June.
Wally Adeyemo, the deputy Treasury secretary, said Sunday that the uncertainty is already hurting the economic outlook, making it harder for businesses to plan for the future.
“We’re already going to start seeing the impacts on the economy of the fact that Congress hasn’t taken [a default] off the table,” he said.
Watch this space: There has been speculation that Biden could find a constitutional work-around if a divided Congress can’t come to terms. But Yellen said there are “no good options” other than a deal.
“I don’t want to consider emergency options,” she said. “What’s important is the members of Congress recognize what their responsibility is.”
The KBW Regional Banking Index, which tracks mid-size lenders in the United States, plunged 8% last week, its worst showing since the failure of Silicon Valley Bank in March. Yet this week is kicking off on a more optimistic note.
The latest: Shares of PacWest
(PACW) rose 39% in premarket trading on Monday, extending a substantial rally on Friday. The California-based lender said it would slash dividend payments, allowing it to conserve cash.
“Given current economic uncertainty, recent volatility in the banking sector and potential changes in regulatory capital requirements, we view reducing the dividend as a prudent step,” CEO Paul Taylor said in a statement Friday. “Our business remains fundamentally sound.”
Shares of other regional banks, including Zions
(ZION) and Comerica
(CMA), are also up in premarket trading Monday. But given the ongoing volatility, it’s too soon to say the crisis of confidence in the sector has ended.
Remember: The failure of First Republic Bank last week has put investors on edge. JPMorgan Chase
(JPM) bought most of the bank’s assets, protecting depositors, but shareholders were wiped out. That’s sparked a hunt for any other lenders that may be vulnerable.
by tyler | May 5, 2023 | CNN, investing
US regional bank stocks veered wildly on Thursday and Friday, accentuating fears that federal regulators have not yet contained a crisis in the sector that could shake the financial system.
What’s happening: PacWest
(PACW) shares lost half their value on Thursday after the California-based lender said it was exploring all strategic options. Shares of Arizona’s Western Alliance finished down 39% despite the company’s denouncement of a Financial Times report it was considering a sale. Utah’s Zions and Texas’ Comerica both suffered stock declines topping 12%.
Regional bank shares rallied on Friday but were still down sharply compared to one week ago.
What’s particularly alarming, according to industry insiders? These banks weren’t seeing depositors rush for the exits when investors panicked.
“The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news,” PacWest said in a statement, noting that 75% of its deposits were insured as of May 2.
Breaking it down: Wall Street is on the hunt for any signs of vulnerability in the banking system after the high-profile demise of Silicon Valley Bank, Signature Bank and First Republic Bank in a matter of weeks. While authorities stepped in to protect depositors at those banks, investors were left with stocks that were suddenly worthless. Now, they’re anxious to get ahead of the next shoe to drop.
But skittishness can become a self-fulfilling prophecy. Customers may see a drop in their bank’s share price, assume it’s in trouble, and yank their funds. Banks fail when too many people try to withdraw their deposits at once.
“Unfortunately, there’s a feedback loop here,” said Tom Michaud, the CEO of Keefe, Bruyette & Woods, an investment bank owned by Stifel that specializes in financial services.
That means this bout of instability may require a circuit breaker.
“I believe it really only ends after we get some type of government intervention,” Michaud told me. Without one, he continued, “the market will keep testing weak links — or perceived weak links.”
Michaud is advocating for the US Federal Deposit Insurance Corporation — which guarantees deposits up to $250,000 per person, per bank — to protect all deposits in the United States for one year.
That time-limited measure would help financial markets calm down and provide space for Congress to modernize the deposit insurance framework, ensuring it’s set up for the age of social media, rapid bank transfers and a growing pile of uninsured deposits, all of which can fuel or exacerbate bank runs, he said.
“The simplest way to do it is [to] insure everybody for a year until we can figure it out,” he said. “We need a time-out.”
Meanwhile, Stephen Biggar, director of financial institutions at Argus Research, is concerned that swings in regional bank stocks may be intensified by short-selling, a practice in which an investor bets against a stock and benefits when its price falls.
The value of short positions in regional bank stocks reached $15.1 billion in mid-April, up from about $13.7 billion one year ago, according to data from S3 Partners. Its analysts have tracked $569 million in new short-selling over the past 30 days.
“If there’s a discovery there’s an enormous amount of short-selling going on, I think — for the fabric of the banking system itself — that should not be allowed to stand,” Biggar said, noting short-selling restrictions were imposed in March 2020 during the thick of the panic surrounding the Covid-19 pandemic.
He also said the Biden administration — which has ramped up antitrust enforcement generally, raising questions about whether mergers will be approved — should signal that it supports more consolidation among small and medium-sized players in the sector. That would ensure depositors don’t see the handful of big US banks, such as JPMorgan Chase
(JPM) and Citigroup
(C), as the only safe place to park their cash.
Given there are still more than 4,000 banks in the United States, consolidation would make the system “stronger, not weaker,” Biggar said.
How quickly is the pace of hiring in the United States cooling off?
That question will dominate the release of the closely-watched US jobs report for April, arriving Friday morning.
The forecast: Economists expect to learn that the US economy added 180,000 jobs last month, according to estimates from Refinitiv.
Excluding the losses during the first year of the pandemic, that would be the smallest monthly gain since December 2019.
Moderate job gains would bolster other data indicating the US labor market is losing steam. Earlier this week, the Bureau of Labor Statistics said that in March, job openings declined, hiring was flat, layoffs spiked and the number of people quitting trended down.
Remember: Economists have been waiting for signs the US job market is moderating after 10 consecutive rate hikes from the Federal Reserve.
Fed officials want to see more slack in the labor market since it gives workers less bandwidth to ask for raises, which can prop up inflation. Slower hiring would bolster the case for the Fed to pause rate hikes.
Yet assessing the magnitude of decline from here is difficult, according to Nick Bunker, economic research director at the Indeed Hiring Lab.
“Something that starts as a cooldown can turn into a downturn pretty quickly,” he warned.
Apple’s revenue has declined two quarters in a row. That’s not good news for America’s most valuable public company.
But the tech giant’s earnings, published Thursday, also include signs it could weather the economic slowdown better than feared.
CEO Tim Cook announced that iPhone sales hit a record for the quarter ending in March “despite the challenging macroeconomic environment” that’s hurt demand for smartphones.
Sales from its services business, which includes Apple Music and Apple TV+ subscriptions, also hit an all-time high. Shares are up 2% in premarket trading Friday.
On the radar: Fears of a US recession loom. But Apple’s future may not hinge on sales in its home country.
Cook said iPhone sales had been bolstered by “emerging markets from South Asia and India to Latin America and the Middle East.” Last month, he traveled to India for the opening of the country’s first two Apple stores in Mumbai and Delhi.
by tyler | May 4, 2023 | CNN, investing
JPMorgan Chase’s rescue of First Republic Bank in the United States this week didn’t herald the end of the banking crisis.
Investors have shifted their attention to other regional lenders, dumping shares of California’s PacWest
(PACW), which is now exploring “all strategic options.” The bank’s stock is down 36% in pre-market trading on Thursday.
First Horizon
(FHN) and TD Bank
(TD)also called off a $13 billion deal Thursday that would have formed America’s sixth-largest bank. First Horizon
(FHN)’s stock has plummeted about 40% in recent months, and it’s plunging further pre-market.
What’s happening: Tumult in the sector following Silicon Valley Bank’s collapse in March has put Wall Street on alert, ready to pounce at any sign of weakness.
Bank shares have struggled in this climate. The KBW Bank Index, which tracks leading US lenders, has plunged 32% since the beginning of March.
Yet across the Atlantic, losses have been much more limited. The Stoxx Europe 600 Banks Index, which tracks big EU and UK banks, has shed 14% over the same period. Year-to-date, European banks are up more than 3%, while US lenders are down 26%.
What accounts for the divergence? Analysts note that in Europe, the banking sector is much more consolidated, and most of its players run diversified businesses. They’re also subject to stricter regulation. That eases anxiety about the industry at a moment of heavy scrutiny.
“It’s really critical infrastructure for the European economy,” said Guillaume Menuet, Citi Private Bank’s head of investment strategy and economics in Europe, the Middle East and Africa. “The degree of oversight has always been larger.”
Depositors in Europe are also less likely to yank their money, Menuet said. Andrea Orcel, the CEO of Italy’s UniCredit
(UNCFF), made this point on a call with analysts Wednesday after the bank reported earnings.
“Our deposit base is sticky, diversified, stable and high quality,” Orcel said.
Turmoil in the United States — which helped bring down Switzerland’s scandal-ridden Credit Suisse — is unlikely to infect other lenders in Europe, Orcel added.
“The economic shocks and unexpected fragility we have witnessed across the US and in Switzerland raised [questions] about both banks’ strengths and how they are operating day-to-day,” he said. “These were idiosyncratic and specific to a segment of our industry, with limited read-across to European banking.”
(Shares of UniCredit, which has been boosting shareholder rewards, are up 37% year-to-date.)
Broader market dynamics have also helped European bank stocks. Investors have shown greater willingness to buy European equities after shunning the region for some time. Improvements to the economic outlook at the start of the year, among other factors, have bolstered sentiment.
The European Central Bank, which meets Thursday, has also been slower than the US Federal Reserve to hike interest rates. That means banks are still in a sweet spot in which they can make more money off loans without having to meaningfully increase what they pay to their depositors, Menuet said.
Take note: Fed Chair Jerome Powell said Wednesday that the US banking sector remains solid.
“Conditions in the sector have broadly improved since early March, and the US banking system is sound and resilient,” he said. “We will continue to monitor conditions in the sector. We’re committed to learning the right lessons from this episode.”
But as regional banks continue to stumble, volatility in bank shares looks set to continue.
White House economists are warning that a protracted US debt default would cause the loss of more than 8 million jobs and cut the value of the stock market in half.
The new projections, published in a blog post by the White House Council of Economic Advisers, outline the enormous stakes behind a potential breach of the debt ceiling.
“A protracted default would likely lead to severe damage to the economy, with job growth swinging from its current pace of robust gains to losses numbering in the millions,” the White House economists said.
Remember: Treasury Secretary Janet Yellen said the US could default on its debt as soon as June 1 if Congress doesn’t act.
The report estimates the impact under three scenarios: brinksmanship, a short default and a protracted default. Even a brinksmanship scenario, where a default is avoided, would wipe out 200,000 jobs and knock 0.3 percentage points off annual gross domestic product, according to the Biden administration.
The White House projections are similar to ones made by Moody’s Analytics, which warned in March that a lengthy default could cost more than 7 million jobs.
Powell’s take: The Fed chair warned on Wednesday that the central bank would have limited bandwidth to save the US economy if an “unprecedented” default occurs.
“No one should assume that the Fed can protect the economy and financial system and our reputation from the damage that such an event might inflict,” he said.
Banks are in the business of confidence. They take in money from depositors and lend it out to other households and businesses with interest. That means, however, that depositors can’t all demand their money back at once. If they do, the lender is in trouble.
Regulators know this set-up is fragile. They do what they can to avert bank runs as a result. Yet according to the results of a survey from Gallup released Thursday, Americans are edgy, adding to risks.
This just in: 48% of US adults said they were concerned about the money they deposit with banks and other financial institutions. While 29% said they were “moderately” worried, 19% identified as “very” worried.
The findings are similar to those from the 2008 financial crisis. In September of that year, after Lehman Brothers went bust, 45% of US adults said they were very, or moderately, worried about the safety of their money in banks.
The latest Gallup poll was conducted between April 3 and April 25, following the March collapse of Silicon Valley Bank but prior to the failure of First Republic Bank this week.
