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Market Snapshot 5.1.23- Busy And Important Week

Good Monday AM,

This is going to be a busy and important week and it started off with a bang of another bank failure.

First Republic is the second largest bank failure, ever (comments below). More bank failures are likely. The major calendar items for the week are below, and we are already seeing some increased volatility today. Excitement around tech (Meta has done an incredible turn around) is pushing equities higher for the moment. Bonds are taking it on the chin. There is also a piece in the WSJ how construction is increasing and could possibly buoyed the anticipated recession. I think that is a stretch as the commercial projects may help to a degree and so will home builders but the market needs houses. New homes typically represent 20% of total real estate transactions. Trying to be brief today but not working out so well. Markets are in a tough spot at the moment, it feels that there is a desire to be risk on, but the smart money is saying not so fast.

Discretion is the better part of valor, always.

The Labor Department releases the job openings and labor turnover survey, or Jolts. Economists forecast 9.6 million job openings on the last business day of March, down from 9.9 million in February.

The Federal Open Market Committee announces its monetary-policy decision at 2 p.m. Eastern time. The federal-funds rate currently stands at a range of 4.75% to 5%. Federal Reserve Chairman Jerome Powell will hold a press conference at 2:30 p.m.

ADP releases its national employment report for April. Expectations are for the addition of 143,000 private-sector jobs, down from 145,000 in March.

The Institute for Supply Management releases its services purchasing managers index for April. Economists expect a 52 reading, up from 51.2 for March.

The European Central Bank announces its monetary-policy decision. The ECB’s key interest rate stands at 3%.

The Labor Department reports initial jobless claims for the week ended April 29. Economists expect 240,000 initial claims, up from 230,000 the week prior.

The Labor Department releases the nonfarm employment situation report for April. Economists forecast an increase of 180,000 jobs, following a 236,000 gain in March. The unemployment rate is expected to tick up to 3.6% from 3.5%.

Interesting that Redfin shared:

House hunters moving to a new area make up a bigger piece of the homebuying pie than ever. A record one-quarter (25.1%) of home searchers looked to relocate to a new metro in the first quarter. That’s up from 22.8% a year earlier and around 18% before the pandemic.

Top 10 Metros Homebuyers Are Leaving:

  1. San Francisco
  2. New York
  3. Los Angeles
  4. Washington, D.C.
  5. Boston
  6. Seattle
  7. Chicago
  8. Denver
  9. Hartford, CT
  10. Minneapolis, MN

Top 10 Metros Homebuyers Are Moving Into:

  1. Miami
  2. Phoenix
  3. Las Vegas
  4. Tampa, FL
  5. Orlando, FL
  6. Sacramento, CA
  7. Cape Coral, FL
  8. North Port-Sarasota, FL
  9. Dallas
  10. Houston

Another bank failure:

Regulators seized First Republic Bank and struck a deal to sell the bulk of its operations to JPMorgan Chase heading off a chaotic collapse that threatened to reignite the recent banking crisis. JPMorgan said it will assume all of First Republic’s $92 billion in deposits—insured and uninsured. It is also buying most of the bank’s assets, including about $173 billion in loans and $30 billion in securities. As part of the agreement, the Federal Deposit Insurance Corp. will share losses with JPMorgan on First Republic’s loans. The agency estimated that its insurance fund would take a hit of $13 billion in the deal. JPMorgan also said it would receive $50 billion in financing from the FDIC. San Francisco-based First Republic, the second-largest bank to fail in U.S. history, lost $100 billion in deposits in a March run following the collapse of fellow Bay Area lender Silicon Valley Bank. It limped along for weeks after a group of America’s biggest banks came to its rescue with a $30 billion deposit. Those deposits will be repaid after the deal closes, JPMorgan said. Three of the four largest-ever U.S. bank failures have occurred in the past two months. First Republic, with some $233 billion in assets at the end of the first quarter, ranks just behind the 2008 collapse of Washington Mutual Inc. Rounding out the top four are Silicon Valley Bank and Signature Bank, a New York-based lender that also failed in March.

And this was a sobering commentary from one of the most successful investors of all time:

The U.S. commercial property market is headed for some rough times, according to Berkshire Hathaway’s Charlie Munger. “It’s not nearly as bad as it was in 2008,” he told the Financial Times, referring to the housing meltdown and subsequent financial crisis of that era. “But trouble happens to banking just like trouble happens everywhere else.” Munger said banks are loaded up with “bad loans” that will be vulnerable if the economy hits a bad patch. “A lot of real estate isn’t so good anymore,” Munger added, according to the FT. “We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.”

Please remain safe and stay healthy, make today great!