The Bespoke Report – 5/12/23 – Not Feeling It

May 12, 2023

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Legally speaking, 18 is the age when you are considered an ‘adult’ in the United States. That’s when you are old enough as an American to serve your country, vote, and be tried as an adult for any crimes you may commit. Eighteen may be the age when you are given extra responsibilities, but it doesn’t make you feel like an adult. You won’t be able to legally buy a beer for another three years, and in most states, you can’t even buy a pack of cigarettes without a fake ID. Most 18-year-old Americans still have several years left of school, and they can legally stay on their parent’s health insurance for another eight years. In other words, being 18 makes you an adult in name only.

From a technical perspective, we’re still in a bear market, but like an 18-year-old kid, it doesn’t necessarily feel that way. In fact, there isn’t much ‘feeling’ on the part of bulls or bears these days. As discussed in this week’s report, with seven months having passed since the October low, it doesn’t feel like a bear market, but with the S&P 500 up less than 20% from those lows, it hardly has the feeling of a bull market either. The S&P 500 is essentially right around the same levels it was at 12 months ago, nine months ago, six months ago, or three months ago!

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The Bespoke Report — 5/5/23 — The Worst Is Over

May 5, 2023

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Don’t be confused by panicked price action in regional banks: the deposit crisis is subsiding. One example can be found in the reduced balances for emergency lending programs at the Fed. Those have fallen by $100bn since the March 22nd peak, a sign that stress is abating, and after the failure of FRC in the latest weekly data, 74% of the balances are now loans to the FDIC rather than funding for banks that have yet to fail.

Data on bank balance sheets tells the same story. Domestically chartered banks saw deposits up WoW by a total of $21bn. What’s even more encouraging is core loan growth. Total lending across consumer, commercial & industrial, and real estate loans rose by $29.4bn in the week of April 26th. That’s a major acceleration and was led by smaller banks in a sign that the liquidity stress of deposit swings are hitting credit creation less than feared.

Of course, that doesn’t change the fact that the KBW Regional Bank index was down 8% this week…and that’s after a 4.7% rally on Friday. For their part, large cap stocks suffered through four straight losses before a 1.9% surge in response to strong payrolls data Friday. This marks the fifth-straight week that the S&P 500 has reversed direction from the prior week. Of course, banks weren’t the only reversal: front-month WTI collapsed 7.3% in thin liquidity around dinner time Thursday night before a sharp 12% rally from that low through the close on Friday. Add in the Fed, which has raised the bar for further hikes, and we have what looks like three different storms passing this week and clearing the skies for stocks.

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