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Forget the banking crisis — Main Street’s retail investors have barreled into embattled bank stocks. It looks like nothing tempts people to bet on an industry more than bargain prices, even if they’re caused by the fear of imminent collapse.
In January and February, trading in First Republic Bank
(FRC) stock was outright sleepy. Retail investors averaged just about $20,000 in daily net purchases. After the collapse of Silicon Valley Bank on March 10, however, that daily average exploded to $10.3 million, according to data through April 10 from VandaTrack.
TD Ameritrade’s Investment Movement Index, which tracks retail traders, found that its clients were net buyers of First Republic Bank in March even as the company’s shares plummeted more than 88% over worries about uninsured deposits and the overall health of the banking system.
So far — and it’s very early days — the optimism hasn’t paid off: First Republic has been circling $15 a share for the last month, down from a range of $115 to $145 a share in the first two months of 2023.
PacWest Bancorp
(PACW), meanwhile, another regional bank that sank in the immediate aftermath of the recent turmoil, saw post-SVB retail net purchases of its stock jump to an average of $2.9 million a day, up from virtually none in the first two months of the year. Again, buyers got bargains, paying $9 a share for a stock that had been trading around $30 in the previous few months.
The SPDR S&P Regional Banking ETF, which tracks a range of mid-sized banks, saw overall net purchases grow to an average $3.9 million a day, up from net sales of $120,000 for January and February.
It’s not just regional banks. Individual investors have been piling into big bank stocks like Bank of America
(BAC), Citi
(C)group, JPMorgan Chase
(JPM) and Wells Fargo
(WFCPRL), data from VandaTrack showed.
TD Ameritrade found that the buying interest amongst retail investors was strongest in the financial sector, which was down almost 10% during the period.
Retail investors sought out an opportunity to make “big pay-outs on a return of confidence,” in the banking industry, said Marco Iachini, senior vice president of research at VandaTrack.
At the same time, he said, institutional investors, the so-called “smart money,” have been trading out of volatile regional bank stocks.
Reddit, meanwhile, is full of posts with titles like “First Republic Bank is easy money” and “Regional Banks are significantly undervalued after SVB failure.”
The worry: JPMorgan CEO Jamie Dimon warned last week in an interview with CNN that the banking crisis is far from over and that its consequences will likely be felt for years.
That could mean bad news for those who are betting they’ll see big returns on regional bank stocks. This is a risky move for retail investors, said Iachini, and a speculative play.
And while retail flows into bank stocks are still high, they have waned significantly since mid-March. “That tells me retail capital isn’t here to stay,” said Iachini.
We’re not seeing a meaningful recovery, at least yet, for regional bank stocks, he said. What we’re seeing instead is a light version of what happened as individual investors fueled meme stocks in the early days of the pandemic.
The Oracle of Omaha has set his eyes on Osaka.
In an interview with Japanese news agency Nikkei on Tuesday, billionaire investing wiz Warren Buffett said that he plans on adding to his investments in Japan.
In August 2020, Buffett’s Berkshire Hathaway disclosed that it had purchased a stake of about 5% in Itochu, Mitsubishi, Mitsui, Sumitomo and Marubeni. He increased his holdings of those five financial “trading houses” in November.
Investors abroad often shy away from investing in Japanese trading houses — they’re large complex corporations involved in trading, investing, financing, and importing/exporting and often have business units all over the world. They also tend to be relatively secretive about their business operations.
But Buffett said Wednesday that he wasn’t bothered by the complexity of investing in these multi-faceted entities.
“We feel that these five companies are a cross section of not only Japan but of the world,” he said. “They are really so much similar to Berkshire. They own a lot of different things.”
Buffett gave the rare interview in Tokyo where he plans to meet with all five companies this week “to really just have a discussion around their businesses and emphasize our support.” This is Buffett’s first trip to Japan since 2011.
He added that he is looking into other Japanese companies to invest in. “At the moment, we only own the five trading companies. There are always a few I’m thinking about,” he said.
Shares of the five trading companies soared after Nikkei published the interview.
Chicago Fed President Austan Goolsbee addressed the “new, big, hairy elephant in the room,” on Tuesday. That would be the recent failures of Silicon Valley Bank and Signature Bank, and subsequent market turmoil.
“At moments of financial stress like this, the right monetary policy is really caution and watchfulness and prudence,” said Goolsbee in a speech to the Economic Club of Chicago. “And I don’t say that because I think we should stop prioritizing the fight against inflation just because markets got upset.”
But these financial woes shouldn’t come before monetary policy, said Goolsbee, who is the newest Fed appointee.
“History has taught us that in moments of financial stress, even if they don’t escalate into a crisis, they often mean tighter credit conditions and have a material impact on the real economy in a way that the Fed absolutely needs to take into account when setting monetary policy,” he said.
Minutes from the March Federal Reserve policy meeting are due out at 2 p.m. on Wednesday and the next policy decision will come in early May. Goolsbee said he’ll be watching data closely for signs that credit supply is tightening.
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