Beaten-down by SVB, banks are cheap and M&A is coming, says strategeist

Wall Street is looking at a solid setup for Wednesday, as investors continue to emerge from their hiding places looking to see if the coast is truly clear from that pesky banking crisis.

That brings us to our call of the day, which is rallying around bank stocks and suggesting investors do the same, from Ed Yardeni, president and chief investment strategist at Yardeni Research, along with Joe Abbott, chief quantitative strategist.

“The SVB debacle has depressed the S&P 500 Financials

sector’s market-cap share further below its earnings share. And the S&P 500 Bank Composite hasn’t ever been this cheap relative to the S&P 500

(i.e., since the mid-1980s start of the data),” the pair told clients in a note on Wednesday.

“We liked the financials sector before SVB imploded and like it even more since, as the fallout we expect doesn’t include systemic contagion and does include more M&A activity,” they said.

Yardeni and Abbott say the SVB debacle has left banking stocks cheaper, and they continue to like related stocks because their economic outlook hasn’t changed.

“We don’t expect more bank runs, a credit crunch and a recession. We do expect that banks will have to raise their deposit rates to avert disintermediation. That undoubtedly will squeeze the profit margins of many banks, especially the small community and regional banks,” said the pair. “The result is likely to be lots of M&A activity aimed at cutting costs through consolidation.”

That would also help out the S&P 500 Investment Banking & Brokerage industry
they said.

Looking ahead to bank results due in the second and third week of April, Yardeni and Abbott said investors should expect profits to be weighed by higher provisions for loan losses. “Given the recent banking crisis, even if bank managements aren’t that concerned about loan losses, they might still want to show the banking regulators that they’re being prudent,” they said.

“They might prefer to downplay the impact of the banking crisis on their profitability to calm the nerves of their investors, or at least not overdramatize it,” said Yardeni and Abbott.

A less-bullish note on banks came from Credit Suisse, which will sooner or later be under new management.

A team led by Andrew Garthwaite, chief global equity strategist, notes U.S. banks have underperformed by about 28% in 2023, versus the normal bear market drop of 42%, while Europe banks are down about 10% — for “good reason” — versus a historical bear market underperformance of 35%. They rattled off a list of what will get them to start adding to the sector again.

  • Bond-to-equity correlations turning positive again. “They key macro driver of banks in 2022 was that as equities fell, rate expectations/bond yields rose,” but in March this correlation turned negative.

  • The yield curve uninverting, as it’s still flashing a “mild warning signal” for the sector.

  • Banks getting cheaper on Credit Suisse’s favorite measure — price-to-book relative to the market, which was neutral in early March.

Tactically, they’d like to see banks start to become oversold and positioning among investors lighten up, as Credit Suisse sees the sector as most consensus long, or bullish.

The markets

Dow futures

are up over 200 points, with S&P 500

and Nasdaq 100 futures

also pointing to a strong bounce. Bond yields


are edging lower and the dollar

is up. Gold

is down $5 and oil

is modestly higher. Bitcoin

is hovering above $28,000.

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The buzz


stock is up 13% in premarket trading, after the athleisure wear maker reported an earnings and revenue beat.

Micron Technology

reported its biggest loss on record, but the chip group’s shares are up 2.7% after executives indicated a turnaround is ahead. Investors also seem to be betting that the stock has hit bottom.

Stratasys shares

jumped 7.7% after Israel-based Nano Dimension

lifted its bid to buy the fellow 3D printer maker to $19.55 a share.

A new Senate Finance Committe report alleges that Credit Suisse abetted possible tax evasion of dual U.S.-Latin American citizens, while several other Swiss banks may be holding large secret offshore accounts of U.S. citizens. It comes ahead of the second day of Capitol Hill testimony on the SVB crisis from Michael Barr, vice chairman for supervision at the Federal Reserve at 10 a.m. Pending U.S. home sales is due at the same time.

Following its planned deal for Credit Suisse, UBS

brought back former CEO Sergio Ermotti, who steered the bank through post global financial crisis years.

Read: Amid warnings for the sector, these 11 commercial REIT stocks are loved by analysts, who see upside of up to 47%

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Get ready for the Great Shoulder Resurgence of 2023.

The chart


The above chart from JonesTrading’s chief market strategist Michael O’Rourke shows how seven of the biggest S&P 500 companies have recouped half of their move from the November 2021 peak to the January 2023 low thanks to a strong first quarter. That includes an 81% jump for Nvidia
Meta Platforms

up 67%, Tesla

up 53%, Apple

up 21%,

up 15% and Microsoft

and Alphabet

up 14% each. “Although the tape has withstood persistent inflation, rate hikes and now a banking panic, such narrow, unstable speculative gains are likely to prove fragile. If this group rolls over as its setup is primed for, it will make for a long 2023,” says O’Rourke.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:


AMC Entertainment


First Republic Bank


Bed Bath & Beyond



AMC Entertainment Holdings preferred shares

Mullen Automotive


Random reads

Amsterdam will do almost anything to keep out young British men.

Metal detector unearths $250,000 gold nugget.

Worth it? $90,000 a year for an Ivy League education.

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Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

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