All three major US stock market indices steadily shed their early premarket gains yesterday and closed the session in the reds after two US regional banks disclosed loan problems involving alleged fraud, bolstering fears of broader credit market stress.
Losses continue to roll in during today’s premarket session, with market participants reacting swiftly, almost identically, to the mini credit crisis event back in 2023, when Silicon Valley Bank ultimately collapsed after a bank run.
This time around, the culprits responsible for the enhanced volatility and bitter shift of euphoric sentiment to something akin to panic, were Zions Bancorp and West Alliance Bancorp, where the former disclosed a significant $50 million loss, tied to two bad commercial and industrial loans in California and the latter reported that one borrower failed to provide collateral on its loans, intensifying concerns that the incidents of loan fraud may be indicators of broader credit risk problems
“When you see one cockroach, there are probably more, and so everyone should be forewarned”, noted JP Morgan CEO Jamie Dimon earlier this week, referring to Tricolor Holdings and First Brands filing for Chapter 11 in September and apparently yesterday markets saw the first signs of infestation, acting as harbingers that more could follow.
We have to note nonetheless, that what differentiates this case with SVB’s failure two years ago, was that in 2023 the Federal Reserve was aggressively hiking rates to contain rogue inflation, which is what put the excess strain on the overexposed lender. This time around, inflation appears non-threatening, the Federal Reserve is on the brink of slashing rates swiftly and credit defaults probabilities for the banking sector remain relatively supressed and broader systemic risk is low.
Technical Analysis
S&P500 Chart – S&P500 pulls further away from all-time highs on credit risk jitters
Resistance: 6680 (R1), 6775 (R2), 6900 (R3)
Support: 6500 (S1), 6420 (S2), 6350 (S3)
