Dumaine Investments Weekly Market Update – August 8, 2023
• US stocks have traded lower over the past week as disappointing earnings results, mixed economic data, and renewed worries about regional banks weighed on markets. Moreover, a pronounced bearish trade has driven the 10-year Treasury yield to its highest level in more than a decade, suggesting that interest rates may remain higher for longer. The 10-year yield nearly reached 4.20% last Friday before falling back to 4.02% on Tuesday.
• Late Monday, Moody’s announced ratings downgrades on ten regional banks, while putting several other lenders on review for downgrade. Among the risks cited were rising funding costs, lower regulatory capital on hand, the chance of commercial real estate defaults, and the possibility of a recession. “We continue to expect a mild recession in early 2024 and given the funding strains on the U.S. banking sector, there will likely be a tightening of credit conditions and rising loan losses for U.S. banks,” per the Moody’s statement. While these are all valid concerns, the timing of the downgrades is somewhat surprising, given that the banking crisis reached an apex in early spring with the collapse of Silicon Valley Bank and First Republic. Since then, there has been considerable stabilization in the sector, and we believe the Moody’s downgrades could present some selective buying opportunities.
• Over the last several weeks, we’ve consistently pointed to weakness in China as a material consideration for global markets, and the concern is now further magnified by new data. July exports fell by the largest degree since February 2020, while imports also dropped more than economists had expected. The softness in imports weakens the hope that domestic demand will help China’s economy recover.
DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.