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“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” – Bob Hope

Morning stock market summary

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After a slug of economic data, equity futures remain biased towards the downside along with treasury yields.  Initial jobless claims came in higher than expected, continuing claims were modestly below estimates, headline PPI was weaker than expected, and core PPI was in line with expectations.  Headline producer prices are currently up 2.3% on a y/y basis which is right in line with where this reading was in 2018 and 2019.  Investors can debate over whether or not the FOMC should be cutting rates later this year, but given the continued weaker trend of data and stress in the banking sector, any continuation of rate hikes in June would be completely out of touch.

It was nice for a few days when headlines surrounding the regional banks weren’t at center stage, but PacWest ended the intermission this morning when it announced that nearly 10% of deposits at the bank left last week when news surfaced that the bank was evaluating strategic alternatives.  Shares are down over 20% this morning and dragging other regional banks down with it.

While the banks may have been out of the headlines for a few days, the selling hadn’t stopped.  Yesterday, the SPDR Regional Banking ETF (KRE) had its second-lowest close of the year trailing only the level it closed at last Thursday (5/4). In pre-market trading this morning, KRE isn’t quite below that close from a week ago, but it is within 20 cents of that low close ($36.08).

Shares of KRE have come nearly full circle from their COVID lows in early 2020.  What’s interesting to note is that after the decline in the COVID crash in 2020, most investors probably thought they would never see regional banks decline that swiftly and with that magnitude ever again, but looking at the chart below, just three years later, history pretty much repeated itself.

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