06-May-2023: So this topic is about sentiment regarding the global banking system, bank collapses, the regional banks in the US (seen as vulnerable by some - and if they start to fold it may signal another global banking crisis), etc.

Here's what happened on Friday (5th May), so overnight Australian time, in the USA:

Dow Jones +547 points (+1.65%). It was up 621 at best. NASDAQ +2.25%. S&P 500 +1.85%. KBW Bank index +4.60%. Down 11% for the week.

Marcus Padley said: The regional banking bomb defused itself overnight. The KBW Regional Bank index +4.69%. 15 stocks in the index were up more than 6%. Pacwest was up 81.7%. Western Alliance up 49%. Zions up 19%. Comerica up 17%. At the bigger end of town US Bancorp up was 6.1%, Citigroup up 3.2%, Wells Fargo up 3.3%, Bank of America up 2.7%, Morgan Stanley up 2.7%, JPMorgan up 2.0%. The VIX Volatility index dropped 14% to 17.19.

SPI Futures up 64, suggesting we are due for a positive day on Monday here in Australia.

Marcus notes:

• Criticism of hedge funds manipulating regional banks for $7bn in paper profits.
• JP Morgan upgraded Western Alliance, Comerica and Zions to overweight. "With sentiment this negative, in our view it won’t take much to see a significant intermediate-term favourable re-rating of regional bank stocks". Another broker wrote "Given our view there is nothing new fundamentally occurring with bank system deposits, we believe investors could be handsomely rewarded".
• A solid bounce in BHP (up 4.5%) and RIO (up 3.6%).
• Bond yields up a touch.
• All sectors up.
• Non-Farm Payrolls +253,000 v consensus of 180,000. But January and February revised down a lot.
• Morgan Stanley - Jobs trend slowing - " On balance, the data suggest the soft landing we expect this year is achievable". "Fed to pause and keep rates elevated for some time".
• Fedspeak - Bullard - "Can achieve a soft landing".
• Capital Economics - The Fed will cut rates towards the end of the year, the US economy will slow, the S&P 500 forecast for year-end is 8% below where it is now.

Interesting.

As always, while keeping an eye on the macro, I do not tend to let macro considerations have too much input into my investing decisions in Australian-listed companies. My larger portfolios hold mostly larger companies (by ASX standards) who can easily withstand a downturn (including a recession), and in fact many have the balance sheets to enable them to come out the other side of a serious downturn even stronger, perhaps engaging in some opportunistic M&A on the way through. Hope for the best, but prepare for the worst.

I find the global market gyrations interesting, but in an abstract sort of way. The market will go up, although not always in a straight line, and we've been through pits and troughs before, the rollercoaster moves ever higher over decent periods of time. The main concern is not to have exposure to companies who could well go broke in a downturn or a higher interest rate environment. Permanent Loss of Capital is the main thing to try to avoid, and companies going broke is the main source of that. Also, of course, you want to be invested in companies who are going to be worth more in the future than they were yesterday or are today, and that is a bit harder to get right consistently, but if you have a strong investing framework with sensible rules and you stick to those rules, you should have more wins than losses which should put you in a good position in the future.

We won't get all of our calls (and investments) right, but if we are sensibly diversified and have more wins than losses, we should do well. You can only lose 100% on an investment that goes to zero (something to be avoided if possible of course) but you can make well over 100% on a winning investment. So the percentages will work in our favour if we have a good investment framework with sensible rules - and stick to those rules.