A Green End To A Volatile Week

Investors’ game of “whack a mole” continues as banking sector fears continue. As one bank’s crisis is seemingly avoided, the market moves on to its next potential victim.

Today that victim was Deutsche Bank. The German lender’s shares extended their decline after a sudden spike in the bank’s Credit Default Swaps (CDS). This asset is essentially an insurance policy against the bank’s failure, so a jump in price means the market is pricing in a rising risk of failure.

Some came to the bank’s defense, saying it’s reported ten straight quarters of profit and has stronger liquidity measures than the recently failed banks. Even Jim Cramer used a similar argument to defend Deutsche Bank, though some suggested that’s exactly why they should be concerned. 😅

Shares of $DB closed down 3%, marking their third straight weekly decline. 📉

As the banking fears continue, global officials are working overtime to restore the market’s confidence. ⌚

Treasury Secretary Janet Yellen called an impromptu, closed-door U.S. Financial Stability Oversight Council (FSOC) meeting on today. The multi-regulator participants received a briefing on market developments from Federal Reserve Bank of New York staff. 📝

Following the briefing, FSOC released a statement, essentially saying that the U.S. banking system “is fine.” The post-meeting readout stated, “The Council discussed current conditions in the banking sector and noted that while some institutions have come under stress, the U.S. banking system remains sound and resilient.” 

Three Federal Reserve bank presidents also chimed in today. Their separate remarks indicated that “there was no indication that financial stress was worsening this week,” allowing the Fed to continue tightening by 25 bp. 💬

Ultimately where we stand is that the government will only backstop depositors at banks who pose a risk of contagion. They will not bail out shareholders, bondholders, or other stakeholders. Protecting depositors and confidence in the overall banking system remains their primary goal.

For now, they will sit back and see how it all plays out, acting only as needed. 🤷

Shares of fashion retailer Express have seen better days. And in a difficult environment, its poor holiday-quarter results have investors wondering whether they’re headed for zero. 🤔

The company’s loss per share of $0.63 beat the $0.72 expected. However, revenues of $514.3 million fell well short of the $536.68 million estimate.

Executives’ strategy to elevate the brand with higher average unit retails and reduced promotions had worked well in the first half of 2022. However, the weakening macroeconomic environment, inflationary pressures, and changing consumer preferences challenged that approach in the back half of the year. 🛒

The company expects those headwinds to continue into 2023 and has begun to refocus on profitability, identifying $40 million in annualized expenses savings so far this year. In addition, it’ll continue to identify opportunities as it pursues long-term, profitable growth for the Express brand.

Regarding numbers, executives forecasted full-year 2023 comparable sales of positive low-single digits. They’re also looking for a diluted loss per share of $0.85 to $1.05, including capital expenditures of $55 million as it restructures its stores. 🔮

While Express isn’t quite on the brink of collapse like Bed Bath & Beyond or other struggling retailers, investors are rightfully concerned. Retailers and adjacent industries have painted a very cautious picture for consumer spending in 2023. That, plus a weak funding environment, could make it difficult for Express to stage a proper turnaround. Not to mention, a stock price nearing its all-time lows doesn’t inspire confidence. 😬

Overall, the negatives outweighed the positives today. $EXPR shares regained some ground throughout the session but closed down 12%. 🔻

The days are short, but the quarters are long. And this first quarter has felt like a year of action in and of itself. So as we head into Q1’s last week of trading, we thought it’d make sense to check how the various asset classes are performing. 📆

Below is a chart of ETFs tracking stocks, bonds, commodities, and currencies at a high level. 👇

Despite the last month of volatility, most asset classes are still positive for the year. And within stocks, developed markets (ex-North America) are outperforming, and emerging markets are underperforming, albeit marginally.

The lone standout here is commodities, which are decisively negative for the year. Of course, this ETF weighs energy heavily, which accounts for much of the underperformance. But overall, it’s clear this asset class does not look like the others. 🛢️ 

And lastly, we’ve got one chart that almost every technical analyst is talking about this week. 💬

Below is a weekly chart of the financial sector ETF $XLF. As you can see, there are no indicators, nothing fancy. Just prices and simple support and resistance analysis.

Technical analysts argue that this sector is a key barometer for where the market is headed next. Prices are currently sitting above their 2007, 2018, and 2020 highs. But if the market is sniffing out more significant issues ahead, this ETF will likely break below its crucial support level.

Theoretically, it makes sense why this would be of interest. Many of the market’s recent concerns revolve around the U.S./global financial system. If systemic issues exist and start playing out, this ETF tracking the U.S.’s largest financial institutions is going to get hit. How could it not? 🤔

So far, prices have managed to hold above this “key level” of support that analysts are pointing to. As we head into the end of the quarter, they’ll be watching to see whether that holds true. Because if it doesn’t, that could indicate more trouble is ahead. ⚠️

In the meantime, we’ll have to wait and see whether their theory is correct. 🤷