Regional bank stocks could be on the rocks again

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Stocks of small US lenders are still in the doldrums nearly a year after the regional banking crisis.

The KBW Nasdaq Regional Banking index, which tracks the performance of regional lenders and thrifts, has fallen more than 2.4% this year compared to the benchmark S&P 500’s 2.6% gain.

PNC Financial Services (PNC) shares have declined 2.3%, Comerica Inc (CMA) shares have slipped 1.5% and US Bancorp (USB) shares have fallen 1.1% during the same period.

Regional banks reported fourth-quarter earnings this month that raised concerns that small lenders have yet to recover after overcoming the worst of the industry’s turmoil in 2023. KeyCorp’s (KEY) net income fell about 92% from a year earlier, Citizens Financial’s (CFG) slipped roughly 71%, Huntington Bancshares’s (HBAN) declined about 62% and PNC Financial Service’s slid around 43%.

Adding salt to the wound, the Federal Reserve said on Wednesday that it is shuttering the Bank Term Funding Program, established after regional banking turmoil last year to help lenders meet their liquidity needs. The program will continue for another couple months, but the interest rates on new loans through the program’s expiration on March 11 has been adjusted so that it’s no longer lower than the rate on reserve balances.

“This development is likely to … challenge the health of regional banks,” wrote José Torres, senior economist at Interactive Brokers, in a note on Thursday.

Regional bank stocks struggled for much of 2023 after the collapses of Silicon Valley Bank and Signature Bank sparked a flight on deposits and sent shockwaves through the stock and bond markets.

Customers yanked their money out of the banks as they worried that a potential credit crunch would prevent them from making good on their deposits — most of which were uninsured. High interest rates threatened to put pressure on regional banks’ bond portfolios and squeeze their bottom lines, creating a good old-fashioned bank run.

Eventually, First Republic Bank also collapsed – the second-largest bank failure in history.

Regional bank stocks experienced some reprieve during the late-2023 “everything rally” that saw assets from crypto to gold to stocks race higher as Wall Street grew more convinced that the Fed could lower inflation without the economy slipping into a downturn.

The Fed has penciled in three rate cuts for 2024. While investors were optimistic that the central bank would begin easing rates in March, that hope has faded somewhat in light of hot economic data and warnings from Fed officials about cutting too soon.

But Alex McGrath, chief Investment officer at NorthEnd Private Wealth, said that the Fed’s decision to close its rescue program for regional banks, especially after they reported a difficult quarter, suggests rate cuts could still begin in March.

“I can’t imagine a situation where the Fed would go make that kind of action without knowing what was right behind it,” said McGrath.

The huge challenges facing Apple this year

Sales problems in China. Patent lawsuits in the US. Behind in generative AI. It’s only a few weeks into 2024, and Apple’s year ahead is paved with trouble, reports my colleague Samantha Murphy Kelly.

The tech giant’s barrage of challenges impacts many parts of its overall business. Just last week, Microsoft briefly took Apple’s spot as the most valuable publicly traded company, after trailing behind the iPhone maker for the better part of the last decade. Microsoft’s stock climb is due largely to its early and sweeping bets on generative artificial intelligence, an area in which Apple has largely remained mum.

But some analysts believe the company will be able to navigate its way through the mounting minefields throughout the year.

“Being Apple, which is still the largest company in the world by market cap, I’m sure it will do all it can to minimize the impact of these problem areas,” said David McQueen, an analyst at ABI Research. “It will still have an extremely loyal base of users so that its brand value and recognition, and quality are not compromised.”

Read more here.

US economy grew at a shocking pace in the fourth quarter

The US economy remained shockingly robust in the fourth quarter to close out a remarkably strong 2023 as consumers and businesses continued to spend, reports my colleague Bryan Mena.

Gross domestic product, the broadest measure of economic output, rose at a seasonally and inflation-adjusted annualized rate of 3.3% from October through December, the Commerce Department reported Thursday.

That was slower than the blistering 4.9% rate from July through September, when American consumers splashed out on services and goods. Growth in 2023 overall, from January through December of last year, registered a robust 2.5% rate.

But the fourth quarter’s rate trounced the 1.5% that economists were expecting, according to FactSet estimates. The economy’s strength in the final months of 2023 was broad based, driven by consumer spending, business Investment, government outlays, exports and improvements in housing conditions.

Read more here.