Big Tech Piggy Banks
Stocks have been acting downright frisky since the mini-banking crisis earlier this month.
If you expected to see investors take a little breather, make sure the coast was clear before piling money back into the market, well, I’m with you. I wasn’t eager to jump into stocks the Fed and Treasury Department was scrambling to prevent a full-on banking meltdown.
Yeah, I know, we’re supposed to heed the 1815-era advice from Baron Rothschild and buy when there’s blood in the streets. Which is all well and good – until there’s more blood in the streets…
And as it happens, the old Baron had an ace up his sleeve. Carrier pigeons brought Rothschild the early word of Napoleon’s defeat at Waterloo, so he had a pretty good idea that the blood running in the streets at the time was all there would be. Kinda blows the notion that he was some kind of genius trader. He simply used a 19th century version of a strategy that a lot of hedge funds and political elites still use – insider information.
I suppose if we wanted to identify the carrier pigeons that might’ve tipped the market’s hand and hinted that a rally might be coming, we should look to Fed and Treasury actions after Silicon Valley bank went belly up…
They quickly stepped up and announced that all depositors would be made whole, never mind that the FDIC only insures deposits up to $250K. That announcement came on Sunday, March 12. The S&P 500 opened at 3,835 the next day, Monday, March 13 and it’s been uphill (+7%) ever since…
Past Is Prelude
We don’t have to look back very far to find another time when carrier pigeons brought the early hint of a market reversal. The Fed’s actions in March 2020 in response to the COVID lockdowns is a good corollary.
Now I know, a lot of people like to look back and say that the COVID reaction was overblown. I say that hindsight is always 20/20 and people in general do not like to admit times when they were afraid. But those were damn scary times. The speed with which COVID spread around the world and pushed hospitals to capacity was scary. I drove the 2,220 miles from Baltimore to the Tulane campus like a bat out of hell to get my daughter out of New Orleans.
The stock market was in full on panic mode too – dropping 35% in a month before the Fed dropped the liquidity bomb and set off an epic rally.
Yes, the circumstances were different – the common thread for investors being the Fed.
In 2020, the Fed sent out checks and unemployment payments ballooned and with nothing better to do, a lot of people started trading stocks.
Here in 2023, money has been flooding out of regional banks and, you guessed it, going right into the stock market.
The S&P 500 has now taken back all of the mini-bank crisis losses, and then some…
But this rally we’ve seen is not the kind broad-based mover you’d expect to see when the overall economic picture suddenly improves. This rally is highly concentrated in big tech stocks.
Since March 13, Apple (NASDAQ: AAPL) is up 8.5%. Meta (NASDAQ: META) is up 16%. Microsoft is up 12.5%. Google (NASDAQ: GOOG) is up 11%. Tesla (NASDAQ: TSLA) is up 18%. Amazon is up 13%…
Big Tech: The New Bank Account
The rest of the market doesn’t look so bullish…
The small cap Russell 2000 Index is up less than 3% since March 13. (Which makes sense because smaller emerging companies have a much bigger need to borrow cash via bond sales than big tech, and so are much riskier when rates are high.)
Oil prices are down 2%. (Which makes sense because what’s really changed for the global economy?)
Value stocks as measured by the Vanguard Value Index Fund (VTV) aren’t really participating – the VTV is up 2%. (Which makes sense because value is boring, lol)
And then there’s banks…
Banks are always considered to be a canary in the coal mine (or a carrier pigeon) for the health of the economy and, by extension, the stock market. It was huge 15%-25% one day moves for the banks on March 10, 2009 that marked the end of that bear market.
Banks have not participated in this rally at all.
In fact, Bank of America (NYSE: BAC) is actually down almost 2% since the Fed and Treasury acted…
JP Morgan (NYSE: JPM) is down a bit over 2%…
Morgan Stanley is also lower by better than 2%…
All of which makes sense when we see that depositors have been pulling money out of regional banks and putting that cash into the safest place they can find – big tech stocks.
Yes ladies and gents: it seems that investors are treating big tech stocks like piggy banks.
And no, I doubt it will end well. First sign of trouble and investors will break those piggy banks and get their money to real safety.
That’s it for me this week, take care, have a great weekend, and I’ll talk to you on Monday…
Briton Ryle
Chief Investment Strategist
Pro Trader Today
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