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Forget the banking crisis – Main Street retail investors have piled into bank stocks. It seems that nothing attracts people to bet on a business more than bargain prices, even if they fear collapse.
In January and February, trading in the stock of First Republic Bank (FRC) was completely sleepy. Retail investors averaged about $20,000 in daily net purchases. After the collapse of Silicon Valley Bank on March 10, however, that daily average it exploded to $10.3 million, according to data through April 10 from VandaTrack.
TD Ameritrade Investment Trend Index, which tracks retail traders, found its clients were net buyers of First Republic Bank in March even as the company’s shares fell more than 88 % over concerns about uninsured deposits and the overall health of the banking system.
So far – and it’s very early days – the hope hasn’t paid off: First Republic has been trading around $15 a share for the past month, down from a range of $115 to $145 per share in the first two months of 2023.
PacWest Bancorp (PACW), meanwhile, another regional bank that sank immediately after the recent upheaval, saw net buying after SVB of its stock jumped to an average of $2.9 million a day, up from almost 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 months.
The SPDR S&P Regional Bank ETF, which tracks a range of mid-sized banks, saw total net buying to $3.9 million on an average 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 such as Bank of America (BAC), Citi (C)group, JPMorgan Chase (JPM) and Wells Fargo (WFCPRL), data from VandaTrack showed .
TD Ameritrade found that buying interest among retail investors was strongest in financials sector, which was down nearly 10% during this period.
Retail investors were looking for an opportunity to “make big payments after confidence returned,” in the banking industry, said Marco Iachini, senior vice president of research at VandaTrack.
At the same time, he said, institutional investors, known as “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 overvalued after SVB’s failure.”
The concern: JPMorgan CEO Jamie Dimon warned last week in an interview with CNN that the banking crisis is far from over and that its effects are likely to be felt for years.
That could mean bad news for those betting they’ll see big returns on regional bank stocks. This is a dangerous move for retail investors, Iachini said, and a speculative play.
And while sales flows into bank stocks remain high, they have slowed significantly since mid-March. “That tells me that retail capital is not here to stay,” Iachini said.
We are not seeing a meaningful recovery, at least not yet, for regional bank stocks, he said. What we see 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 its sights on Osaka.
In an interview with Japanese news agency Nikkei on Tuesday, billionaire investing wiz Warren Buffett said he plans to increase his investments in Japan.
In August 2020, Buffett’s Berkshire Hathaway revealed that it had bought a stake of around 5% in Itochu, Mitsubishi, Mitsui, Sumitomo and Marubeni. He increased his holdings of these five financial “trading houses” in November.
Foreign investors often shy away from investing in Japanese trading houses – they are large complex corporations involved in trading, investment, financing, and import/export and they often have business units around the world. They also tend to be rather secretive about their business operations.
But Buffett said Wednesday that he was not bothered by the complexity of investing in these multi-faceted entities.
“We feel that these five companies are a cross-section not only of Japan but of the world,” he said. “They’re a lot like Berkshire. They have a lot of different things.”
Buffett gave the rare interview in Tokyo where he plans to meet with the five companies this week “to just have a conversation about their businesses and emphasize our support.” This is Buffett’s first visit to Japan since 2011.
He said he is looking into other Japanese companies to invest in. “At the moment, we only own the five trading companies. There’s always a few that I think about,” he said.
Shares of the five trading companies rose after Nikkei published the interview.
Chicago Fed President Austan Goolsbee addressed the “new, big, hairy elephant in the room,” on Tuesday. Such are the recent failures of Silicon Valley Bank and Signature Bank, and subsequent market turmoil.
“In times of financial stress like this, the right monetary policy is really cautious and vigilant and sensible,” Goolsbee said. in a speech to the Economic Club of Chicago. “And I’m not saying that because I think we should stop prioritizing the fight against inflation just because markets were upset. ”
But those financial problems should not come before monetary policy, said Goolsbee, who is the newest Fed appointee.
“History has taught us that in times of financial stress, even if they do not rise to a crisis, they often mean tighter credit conditions and have a significant impact on the real economy in a way that the Fed must take note. when setting monetary policy,” he said.
Minutes from the Federal Reserve’s March policy meeting are due out at 2pm on Wednesday and the next policy decision will come in early May. Goolsbee said he will be closely monitoring data for signs that credit supply is tightening.
