Churning in financial markets, as uncertainty over the failure of three US banks and one large European bank continues to play out, didn't stop some investors from buying into that so-called slump in the stock market at one point last week.
That's according to a weekly report released Friday from Wanda Research, which noted that retail investors dumped underperforming financial and energy stocks as well as some large-cap consumer tech names on Wednesday after two weeks of sluggish action. Invested $ 1.43 billion.
Amid concerns over the health of smaller lenders, they bought “unprecedented amounts” of too-large-to-fail banks, equivalent to retail inflows of nearly $1 billion over the past five days. Wanda's chart shows the last five days of net purchases, with excellent financial position:
Marco Iacchini, Senior Vice President, Giancomo Pierantoni, Head of Data, and Lucas Mantel, Data Science Analyst at Wanda, said Charles Schwab SCHW,
During the past week saw the second highest inflows after Bank of America.
A “few adventurers” were buying First Republic Bank, FRC,
PacWest Bancorp PACW,
and Truist Financials TFC,
which he described as a “risky bet that could potentially offer massive upside” if systemic risks can be kept at bay.
Stocks climbed on Thursday after federal authorities mobilized major banks to pour $30 billion into First Republic Bank FRC.
And avert a fourth banking collapse after the failures of Silicon Valley Bank, Signature Bank and Silvergate Bank in the past week. Credit Suisse shares of CSGN,
It meanwhile fell 25% last week, at times spooking global markets amid concerns about the Swiss banking giant's own survival.
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Yet the roller-coaster ride returned on Friday, with financial pressures and First Republic shares plunging after the bank suspended its dividend and disclosed higher borrowing costs. Some of the big banks involved in that deposit scheme were also falling for the lender, such as JPMorgan Chase & Co. JPM,
Bank of America BAC,
and Goldman Sachs GS,
For the week, the Dow fell 0.1%, the S&P 500 gained 1.4% and the Nasdaq Composite gained 4.4%, according to Dow Jones Market Data.
Schwab shares fell 3.9% last week, during which at one point executives were reassuring shareholders that the broker was “well positioned.” CEO Walter Bettinger and other executives bought about $7 million in shares last week during market turmoil.
Wanda analysts said part of the equity sector rotation could be driven by profit-taking in favor of bond-themed exchange-traded funds (ETFs), with some of the largest inflows falling $250 million over the past two weeks. ,
But it's a delicate balance right now, Wanda analysts said, with those investors likely to buy the stock only if a “systemic crisis” can be avoided.
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Bond yields were volatile last week due to uncertainty about the Fed's interest rate path, pushing the ICE BofAML MOVE index to its highest level since the 2008 financial crisis on Wednesday.
Investors pulled $8.8 billion out of prime money-market funds at Schwab last week, pouring it into the broker's government and treasury funds, amid concerns whether more boots will drop in the banking crisis. Bloomberg reportedCiting company data.
The energy sector also saw gains after Tuesday's market decline, Wanda said, although analysts said those aren't stocks that attract loyalty from traders, so if a surge in dip-buying doesn't reverse that momentum , then more trader can dump those shares.
Wanda analysts said retail investors are in a vulnerable position in late 2018, haunted by the ghosts of the 2008 financial crisis.
Capitulation for investors in 2018 came in the fourth quarter, he said, “when equity markets began to decline after a long bearish period amid mixed Fed commentary.” The S&P 500 index fell more than 9% in December 2018 amid concerns over Fed tightening, an economic slowdown and US-China trade tensions.
Markets are gearing up for the Federal Reserve's policy meeting next week. Futures traders in fed funds now see a 75.3% chance of a 25 basis point rate hike next Wednesday due to inflation concerns. As banking stress looms in the background.
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“We also believe that ‘systemic risk' fears related to the banking sector will be less emotional for unsophisticated investors than any minor sell-off due to a Fed interest rate hike or events outside the US,” said Wanda analysts. is more unstable than usual.”
“We remain on watch as we could see volatility in flows in the coming weeks, especially if retail traders panic and start moving more of their assets into money-market funds.”
Such funds are considered safe because investments are focused on low-risk areas such as cash and securities that behave like cash, such as CDs and Treasury bills.
One stock that isn't getting any dip-buying love, they note, is that Tesla is TSLA.
said the Wanda team, which has underperformed the broader market since a disappointing investor day earlier this month. Tesla shares are down 13% this month, versus a 1.3% gain for the Nasdaq Composite Comp,
“We believe that in this environment, TSLA may be left behind as investors now have the opportunity to choose from other familiar pockets of stock markets that have been battered recently, such as energy or financials,” he said.
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