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Wednesday was another action-packed day in U.S. equity markets. The Russell 2000 Index ETF (IWM - Free Report) , composed of 23% Financials, continued to lag behind the other indices and fell by nearly 2%. Despite the Silicon Valley Bank cloud that continues to hang over financials, the IWM and the SPDR S&P Regional Bank KREwere able to pare losses late in the session after news broke that Swiss authorities vowed to provide liquidity to troubled Credit Suisse bank, if necessary. CS, which was down more than 30% intraday, pared losses to finish lower by ~ 13%.
Image Source: Zacks Investment Research
On the other side of the coin, large-cap tech stocks are showing decisively bullish price action. Microsoft (MSFT - Free Report) rose ~2% after the tech giant released ChatGPT4, the newest iteration of its popular chatbot. Meanwhile, chip maker Advanced Micro Devices (AMD - Free Report) hit fresh 6-month highs. Surprisingly, the Nasdaq 100 ETF (QQQ - Free Report) is up nearly 2% in March, contrasting drastically from the small-cap IWM, which is ~ -9% on the month.
Banking Woes
By now, if you follow Wall Street even remotely, you’ve likely heard about the current banking situation. The question is, “how do I play the banks?” Firstly, it is essential to remember that you do not need to participate in a sector. Unlike poker, in the stock market, you can choose not to play a hand or “fold your cards”, without paying an anti.
Should I short the banks? While it can be tempting to short banks with the current news cycle backdrop, shorting “in the hole” can be a dangerous endeavor. Remember, when a sector gets hit as hard as the banking sector has recently, the relief rallies can often be violent and lead to rapid losses. Also, the U.S. and Swiss governments are creating a “floor” by vowing to support banks such as Silicon Valley Bank and Credit Suisse.
How to Play the Banking Sector Long
There are 3 logical ways to play the banking sector if you are looking for a bounce.
1. Stick to Large Banks: While large banks have been hit in recent days, they are not suffering the liquidity issues that smaller banks are. Banks like Bank of America (BAC - Free Report) ,Citigroup (C - Free Report) , Goldman Sachs (GS - Free Report) , and JP Morgan (JPM - Free Report) are likely to be still be volatile, but more stable.
2. Buy a Basket of Stocks:The regional bank ETF KRE and the Financial Select SPDR ETF (XLF - Free Report) provide investors with exposure to a basket of financials while eliminating single stock risk.
3. Look for Management Teams With “Skin in the Game”:Before the collapse of Silicon Valley Bank, management was unloading millions of dollars’ worth of shares. Conversely, Walter W Bettinger, the Co-Chairman and CEO of Charles Schwab (SCHW - Free Report) , purchased 50,000 shares (~$3 million) worth of his company’s shares.
Image Source: Zacks Investment Research
Having a CEO put his own money on the line should instill confidence in prospective investors.
Bottom Line
The banking sector has had a dark cloud hanging over it since the collapse of Silicon Valley Bank. Nevertheless, shorting such a move late can be detrimental to investor profitability. On the other hand, investors looking to get long the sector should do so in a methodical, risk averse manner.
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Market Overview
Wednesday was another action-packed day in U.S. equity markets. The Russell 2000 Index ETF (IWM - Free Report) , composed of 23% Financials, continued to lag behind the other indices and fell by nearly 2%. Despite the Silicon Valley Bank cloud that continues to hang over financials, the IWM and the SPDR S&P Regional Bank KRE were able to pare losses late in the session after news broke that Swiss authorities vowed to provide liquidity to troubled Credit Suisse bank, if necessary. CS, which was down more than 30% intraday, pared losses to finish lower by ~ 13%.
Image Source: Zacks Investment Research
On the other side of the coin, large-cap tech stocks are showing decisively bullish price action. Microsoft (MSFT - Free Report) rose ~2% after the tech giant released ChatGPT4, the newest iteration of its popular chatbot. Meanwhile, chip maker Advanced Micro Devices (AMD - Free Report) hit fresh 6-month highs. Surprisingly, the Nasdaq 100 ETF (QQQ - Free Report) is up nearly 2% in March, contrasting drastically from the small-cap IWM, which is ~ -9% on the month.
Banking Woes
By now, if you follow Wall Street even remotely, you’ve likely heard about the current banking situation. The question is, “how do I play the banks?” Firstly, it is essential to remember that you do not need to participate in a sector. Unlike poker, in the stock market, you can choose not to play a hand or “fold your cards”, without paying an anti.
Should I short the banks? While it can be tempting to short banks with the current news cycle backdrop, shorting “in the hole” can be a dangerous endeavor. Remember, when a sector gets hit as hard as the banking sector has recently, the relief rallies can often be violent and lead to rapid losses. Also, the U.S. and Swiss governments are creating a “floor” by vowing to support banks such as Silicon Valley Bank and Credit Suisse.
How to Play the Banking Sector Long
There are 3 logical ways to play the banking sector if you are looking for a bounce.
1. Stick to Large Banks: While large banks have been hit in recent days, they are not suffering the liquidity issues that smaller banks are. Banks like Bank of America (BAC - Free Report) , Citigroup (C - Free Report) , Goldman Sachs (GS - Free Report) , and JP Morgan (JPM - Free Report) are likely to be still be volatile, but more stable.
2. Buy a Basket of Stocks:The regional bank ETF KRE and the Financial Select SPDR ETF (XLF - Free Report) provide investors with exposure to a basket of financials while eliminating single stock risk.
3. Look for Management Teams With “Skin in the Game”:Before the collapse of Silicon Valley Bank, management was unloading millions of dollars’ worth of shares. Conversely, Walter W Bettinger, the Co-Chairman and CEO of Charles Schwab (SCHW - Free Report) , purchased 50,000 shares (~$3 million) worth of his company’s shares.
Image Source: Zacks Investment Research
Having a CEO put his own money on the line should instill confidence in prospective investors.
Bottom Line
The banking sector has had a dark cloud hanging over it since the collapse of Silicon Valley Bank. Nevertheless, shorting such a move late can be detrimental to investor profitability. On the other hand, investors looking to get long the sector should do so in a methodical, risk averse manner.