Day Traders Diary

3/20/23

The major averages rose today as traders grew hopeful that a crisis in the banking sector may be easing. The gains followed a forced takeover of Credit Suisse by UBS engineered by the Swiss government.The Dow Jones Industrial Average jumped 382 points, or 1.20%, to close at 32,244. The S&P 500 rose 34 points or 0.89% to end the session at 3,951. The Nasdaq Composite gained 45 points or 0.39% to close at 11,675.

Regional banks rose on Monday, rebounding from big losses in the past week. Wall Street expects more action may be needed to restore confidence in the banking system after U.S. regulators backstopped SVB's uninsured deposits and offered new funding for troubled banks.

The SPDR Regional Banking ETF (KRE) gained nearly 1.2% after tumbling 14% last week. PacWest, First Citizens and Fifth Third Bancorp were among the major gainers. The ETF rose 5% at one point during the trading session, but saw some of its gains reverse as First Republic shares fell 47%.

"There's just a fundamental issue here," said Eric Diton, president and managing director of The Wealth Alliance. "People who are holding uninsured deposits at regional banks are nervous and the banking system is based on competence, and trust. You're not going to put your life savings somewhere, if you're not 100% confident that it's going to be there when when you need it."

The instability in the financial sector over the past two weeks raises the stakes for the Federal Reserve's interest rate decision on Wednesday. As of Monday, there was about a 73% chance of a quarter-point increase by the Fed, according to CME Group's FedWatch tool. The other roughly 27% is in the no-hike camp, anticipating that Chairman Jerome Powell may start to ease his aggressive tightening campaign that began in March 2022, in the face of the emerging financial contagion.

"We're still not feeling the full effects [of the rate hikes]. Regional banks, which account for maybe around a third of all lending in the United States, [are] now going to have to pull back on lending to shore up their balance sheet," Diton said.

"That's much tighter capital for the whole economy. It does the Fed's work [of] trying to slow down the economy. So whether they do nothing, or they raise 25 basis points [on Wednesday], I think there's a good chance that they may very well sit and wait after that," added Diton.