Fear Subsides Among Traders

Stocks gapped up at the open, reversing yesterday’s declines. Currently, the Dow is up 220 points and the S&P 500 is up 1%. A number of sectors are up more than 1% in early trading: consumer discretionary, financials, tech, real estate and utilities. The VIX fear gauge fell back under 20 and bank stocks are recovering nicely. Bonds are green across the board as interest rate expectations edge lower.

Home prices continue to moderate throughout the US. The FHFA’s home price index peaked last June, and the year-over-year rate of price growth has decelerated to about 8% from 19% a year ago. Separately, Case-Shiller’s Home Price Index also peaked last June and has fallen for seven straight months, with year-over-year growth of just 3.8%. Of course, those figures represent national averages. Cities like San Francisco, San Diego, Seattle and Portland are seeing steeper declines. Higher borrowing costs and uncertainty about the economy will probably ensure a slow bleed for home prices this year. But critically, there is no evidence of a crash. Today we learned that the volume of new mortgage applications has increased steadily over the past four weeks. And pending home sales—signed purchase contracts—have rebounded to levels last seen in August.

Disney announced the first of three rounds of layoffs impacting 7,000 employees. The goal of returning CEO Bob Iger is to cut $5.5bil in costs and improve the profit margin. To that end, the company is shutting down its small metaverse division, and raising the price of Disney+. Investors in the current market environment have little patience for either nonessential or unprofitable initiatives.

Following the failure of Signature Bank and Silicon Valley Bank, the Fed is considering new regulations for the industry. Both the FDIC and Fed are targeting banks with over $100bil in assets, which are deemed “systemically important.” Certainly, the Fed’s annual stress tests will include more risk scenarios. And capital & liquidity limits will be tightened. As the banking system’s regulator, the Fed has authority to these changes. On the other hand, congressional action is probably necessary to raise the FDIC deposit insurance limit.