Buying big banks bonanza

Today's result after big banks discount. Did the collapse of SVB had a contribution to the overall downfall of the banking sector or it was only the CPI and PMI strong numbers that played a major role?

Silicon Valley Bank, reason behind the default

Silicon Valley Bank is the largest bank to fail since the 2008 financial crisis. The primary reason for the failure of SVB was their choice to invest their customers' deposits in treasury bonds, which are highly impacted by shifts in interest rates. 

It bought government bonds with fixed interest rates and as the Fed raised rates, those bonds lost value. Silicon Valley Bank had $80 billion in bonds with an average yield of 1.5%. No one wants bonds yielding 1.5% when the current market is selling bonds with yields over 5%.

Big Banks earning show in one graph.

Graph and numbers of top Big Banks earnings and % price for the first quarter of 2023,

C:

in USD	Actual	Estimate	Beat/Miss
Revenue	18.0B	18.0B	+0.2%
EBIT	5.02B	5.07B	-1.0%
EPS	1.16	1.20	-3.5%

JPM:

in USD	Actual	Estimate	Beat/Miss
Revenue	34.5B	34.2B	+0.9%
EBIT	15.5B	14.2B	+9.0%
EPS	3.57	3.10	+15.0%

WFC:

in USD	Actual	Estimate	Beat/Miss
Revenue	19.7B	20.0B	-1.9%
EBIT	3.46B	5.04B	-31.4%
EPS	1.45	1.10	+32.6%

BAC:

in USD	Actual	Estimate	Beat/Miss
Revenue	24.5B	24.2B	+1.5%
EBIT	8.99B	8.77B	+2.5%
EPS	0.85	0.77	+10.9%

GS: Short-dated equity puts have started to be attractive again

Following a year when equity options were too expensive, short-dated equity puts have started to be attractive again with the VIX close to 20. Current implied vols look low compared with average performance during S&P 500 sell-offs in particular for European indices, where risk premia have reset the most. While FX vol has not reset as much as risky assets we think puts on selective non-USD 'risk off' crosses screen attractive, such as CAD/CHF and GBP/CHF

10 soft landing indicators.

1. The US labor market is rebalancing.

2. Fed is approaching terminal rate and will be pausing soon.

3. Overheating and wage-price acceleration is off the table.

4. US recession probability is lower than people think.

5. Corporate earnings collapse is less likely than people think.

6. US consumer and corporate balance sheets remain strong.

7. Global inflation pressure has peaked, and sentiment will bottom.

8. Soft (sentiment) data could be overstating economic weakness due to the nature of diffusion indexes and the way they can overshoot when cycles are extremely fast.

9. High nominal inflation is bad for sentiment but good for nominal growth. This is part of the reason for the massive wedge between soft and hard data.

10. The US is in a much better position than most countries because so much froth and leverage was released in 2008. Froth and leverage remain abundant and interest sensitivity remains high in places like Canada, the UK, etc.

Market digest Friday, December 30, 2022

Fear & Greed Index

The fear and Greed index created by momentum, leading and lagging indicators of the market.

FEAR & GREED INDEX FAQS

What is the CNN Business Fear & Greed Index?

The Fear & Greed Index is a way to gauge stock market movements and whether stocks are fairly priced. The theory is based on the logic that excessive fear tends to drive down share prices, and too much greed tends to have the opposite effect.

How is Fear & Greed Calculated?

The Fear & Greed Index is a compilation of seven different indicators that measure some aspect of stock market behavior. They are market momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility, and safe haven demand. The index tracks how much these individual indicators deviate from their averages compared to how much they normally diverge. The index gives each indicator equal weighting in calculating a score from 0 to 100, with 100 representing maximum greediness and 0 signaling maximum fear.

How often is the Fear & Greed Index calculated?

Every component and the Index are calculated as soon as new data becomes available.

How to use Fear & Greed Index?

The Fear & Greed Index is used to gauge the mood of the market. Many investors are emotional and reactionary, and fear and greed sentiment indicators can alert investors to their own emotions and biases that can influence their decisions. When combined with fundamentals and other analytical tools, the Index can be a helpful way to assess market sentiment.