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Investors — While the United States is in the grip of a financial crisis, Main Street investors have been pouring money into bank stocks.
The trend illustrates that nothing tempts people to invest in a sector more than low pricing, even if it is caused by the fear of an impending collapse.
Early trading
Individual investors recorded more than $20,000 in daily net purchases of First Republic Bank (FRC) stock in January and February.
According to VandaTrack on April 10, following the demise of Silicon Valley Bank on March 10, the daily average jumped to $10.3 million.
The TD Ameritrade Investment Movement Index gauges retail traders, and its clients were net purchases at First Republic Bank in March.
Concerns over the general soundness of the banking sector and uninsured deposits caused the company’s stock to plummet by more than 88%.
Although it is still early in the game, the optimism has yet to yield fruit.
Upticks
First Republic has recently reached a price of $15 per share, down from $115 to $145 in the early months of 2023.
In the meantime, PacWest Bancorp (PACW) witnessed post-SVB retail net purchases of its shares surge to an average of $2.9 million per day, a significant increase after a period of zero activity in early 2023.
The regional bank has also deteriorated in the aftermath of the current catastrophe.
Buyers received a nice deal, paying $9 per share for a company that was previously worth roughly $30.
Total net purchases in the SPDR S&P Regional Banking ETF, which tracks several mid-sized banks, have increased to an average of $3.9 million each day.
From net sales of $120,000 in the first two months of 2023, the trade has grown dramatically.
Regional banks, on the other hand, are not the only ones affected.
Individual investors, according to VandaTrack data, were flocking to huge bank shares such as:
- Bank of America (BAC)
- Citi (C) Group
- JPMorgan Chase (JPM)
- Wells Fargo (WFCPRL)
TD Ameritrade also discovered that retail investor purchasing interest was particularly high in the banking sector, falling by roughly 10% throughout the period.
According to Marco Iachini, senior vice president of research at VandaTrack, retail investors were looking for a chance to profit from a recovery of trust in the banking industry.
He also claimed that institutional investors, or “smart money,” were exiting risky regional bank stocks.
Concerns
Last week, JPMorgan CEO Jamie Dimon warned that the banking crisis was far from over.
He also warned that the impact of the crisis will be seen in the years ahead, which may cast doubt on investors expecting significant gains in regional bank shares.
Iachani classified it as speculative, warning that it may be risky for average investors.
Although retail flows into bank shares remain high, they have significantly decreased since mid-March.
“That tells me retail capital isn’t here to stay,” said Iachini.
He also noted that we have yet to see significant rebound.
Instead, we’re seeing a watered-down version of what happened early in the epidemic when regular investors backed meme stocks.
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Japan trading houses
The “Oracle of Omaha,” Warren Buffet, has shifted the priority to Japan.
On Tuesday, Buffet told the Japanese news outlet Nikkei that he plans to invest in Japan.
In August 2020, his company, Berkshire Hathaway, revealed that it had purchased a 5% stake in the following:
- Itochu
- Marubeni
- Mitsubishi
- Mitsui
- Sumitomo
In November, Buffet increased his holdings in financial “trading houses.”
Foreign investors frequently fear investing in Japanese trading houses due to the immense complexity of the organizations, which have firm divisions all over the world, and their involvement in the following:
- Financing
- Importing/exporting
- Investing
- Trading
Japan’s trade enterprises are also famously secretive about their commercial practices.
On the other hand, Buffet stated on Wednesday that the complexities of investing in them did not disturb him.
“We feel that these five companies are a cross section of not only Japan, but of the world,” said the Oracle of Omaha.
“They are really so much similar to Berkshire. They own a lot of different things.”
Warren Buffet planned to visit all five companies this week to inspect their operations and show his support.
Buffet is also interested in investing in other Japanese companies.
“At the moment, we only own the five trading companies,” he said.
“There are always a few I’m thinking about.”
Following the interview, the stock values of the five companies skyrocketed.
Caution
Chicago Fed President Austin Goolsbee talked on Tuesday on the failures of Silicon Valley Bank and Signature Bank, as well as the accompanying turbulence.
“At moments of financial stress like this, the right monetary policy is really caution and watchfulness and prudence,” said Goolsbee.
“And I don’t say that because I think we should stop prioritizing the fight against inflation just because the markets got upset.”
He also stated that financial troubles should not take precedence over monetary policy, saying:
“History has taught us that in moments of financial stress, even if they don’t escalate into a crisis, they often mean tighter credit conditions and have a material impact on the real economy in a way that the Fed absolutely needs to take into account when setting monetary policy.”
