The latest reports show that US futures and European stocks are down on October 17, following the US regional bank stocks decline on October 16.
Analysis shows that the current banking collapse mirrors similar events that took place in March 2023, meaning that confidence hasn’t been restored in the regional banking system.
Investors’ interest is expected to shift towards other assets, including Bitcoin.
US Futures and European Stocks are Down
Earlier reports from MarketScreener revealed that the US futures for the S&P 500 were down 1.4% and futures for the Dow Jones Industrial Average declined 1.1%.
In Europe, the Stoxx Europe 600 dropped by 1.4% early in the morning, and other European stocks were down as well.
Stocks in Asia were also down as Japan’s Nikkei 225 index dropped 1.$, and Hong Kong’s Hang Seng dropped 2.5%.
The market decline comes amidst US regional banks’ credit fraud fears.
Regional Bank Stocks Dropped on October 16
On October 16, the US regional banking stocks dropped as two banks revealed issues regarding bad and fraudulent loans, which triggered high concerns on Wall Street regarding the state of credit markets, according to reports from The Guardian:
- Zions Bancorp announced a $50 million charge-off over two bad loans from its subsidiary, California Bank & Trust in San Diego.
- Western Alliance also revealed dealing with a fraudulent borrower.
By yesterday afternoon, Zions’ stock was down by over 11% and Western Alliance dropped by 10%.
Today, Zions stock is still down by over 13%, while Western Alliance’s stock is down by almost 11%.
The Guardian highlighted that the regional banking industry has been under scrutiny after First Brands, an auto parts supplier, filed for Chapter 11 bankruptcy in late September over creditor concerns, disclosing between $10 billion and $50 billion in liabilities against $1 billion to $10 billion in assets.
The firm’s creditors filed an emergency court filing saying that $2.3 billion of the company’s assets had vanished. Following reviews, some experts reportedly pointed out that the bankruptcy shows cracks in the system that allowed for shadow banking.
JP Morgan’s chief executive, Jamie Dimon, addressed the issues this week, saying that there are probably more similar problems in the system.
Remembering the March 2023 Regional Banks Stocks Collapse
The Kobeissi Letter analysts shared information today about the March 2023 regional banks stock collapse, when the crisis was supposedly “contained” back then, but the current events show that nothing changed in reality.
The team noted that banks that took outsized risk were “backstopped” by the US government or acquired by JPMorgan, and now, regional bank companies know that the government will backstop deposits in case of a collapse.
Zions and Western Alliance Bank’s stocks’ decline mirrors the March 2023 precedent, showing that regional banks will probably be bailed out even if a collapse is the result of bad management.
The team at The Kobeissi Letter highlighted that this week’s event shows that nothing has changed since 2023, and confidence was never restored in the regional bank system.
Investor Interest Expected to Shift
On a brighter note, the AI revolution is not expected to be affected by these events.
With everything that’s happening in traditional markets, investors’ attention is expected to turn to other investments like Bitcoin and gold.
Gold reached a new ATH on October 17, near $4,335, and despite the market volatilty, Bitcoin is expected to resume its upward trend soon.
