The domino effect that many feared would occur in the wake of the collapse of SVB Financial Group (SIVB) has seemingly begun in earnest…
It didn’t take long for other financial institutions to sound the alarm bells, and it’s not just limited to the U.S. banking system, either.
Credit Suisse Group AG (CS) suffered a 22% drop in share price on Wednesday as regulators called into question the solvency of one of Europe’s largest banks.
The news created even more fear of additional banks facing similar problems.
First Republic Bank (FRC) is now the latest financial institution to face scrutiny, considering FRC bears some similar characteristics to what previously brought down SVB, particularly a large number of uninsured deposits.
And so far, the measures taken to ease pressure on some of the world’s largest banks – including a $50 billion loan from the Swiss National Bank for Credit Suisse and a $30 billion rescue plan for First Republic Bank from a collection of 11 U.S. banks – have done little to quell fears over the banking crisis.
Both stocks have continued to experience selling pressure to end the week, with FRC falling more than 25% and CS losing a more modest 8.75% by mid-afternoon trading.
The trouble in the banking industry is clearly causing some massive volatility, and we haven’t even yet heard from the entity responsible for some of the biggest volatility spikes in the last several years…
The Fed is Still the King of Volatility
While the banking crisis has caused some big rips and dips in the market this week, we could be in store for even bigger moves next week.
That’s because the Federal Reserve is set to hold its latest meeting next week, with the next decision on interest rates expected to be announced on Wednesday.
Over the last year, the Fed has been fighting rising inflation with a series of interest rate increases – and each time Fed Chair Jerome Powell speaks on interest rates, the market has reacted in a big way.
In May 2022, when the Fed increased rates by 50 basis points, Powell speculated that they were not necessarily decided on making a larger increase going forward – which sent the S&P 500 up roughly 3%.
And when a 0.75% increase did actually come to fruition in both June and July, the market still rallied 1.5% and 2.6%, respectively, due to Powell’s comments characterizing the economy as strong and reiterating the Fed’s determination to curb inflation.
In November, after raising interest rates by 0.75% for the fourth time, Powell’s concerns over inflation data that was still higher than expected sent the S&P 500 2.5% lower.
You get the idea – Powell speaks, and the market reacts in a big way.
And combined with the widespread fears over the banking industry, next week’s decision on interest rates could serve to supercharge the market’s reaction.
It’s fair to say that the Fed’s policy of quantitative tightening has contributed to the issues banks are currently facing. The drop in the value of bonds caused by interest rate increases were a key contributor to SVB’s shaky investment portfolio as well as the pain other banks are experiencing.
So should the Fed abandon (at least for now) its efforts to curb inflation in favor of helping the banking industry out?
I don’t envy the position Powell is currently in.
Whatever the Fed decides next week, the market’s reaction is almost sure to be big, in one direction or the other.
Become a Master of Volatility Trading
The market may seem like a scary place right now with everything that’s been happening over the last week, and certain media outlets pushing narratives that make it seem as though were on the verge of an economic collapse.
In my more than 30 years in the market, I’ve experienced how emotions to catalysts like this can lead traders astray. As a rules-based trader, I keep my emotions out of my trading and rely on what experience has taught me.
One of the biggest lessons I’ve learned is that volatile market conditions are some of the most lucrative opportunities for traders.
And thanks to a revolutionary technology and the perfect trading strategy to take advantage of it, I’m prepared for anything.
In fact, I don’t even care anymore what the price of a stock is, or whether it moves up or down.
These days, I’m focused on something way more important than price…
As you can probably guess, I’m talking about volatility.
Using what’s known as a brute force algorithm, I’m able to identify the most volatile stocks in the market that could have resulted in historic windfalls like…
- 598% on Fastly…
- 708% on Abercrombie & Fitch
- 1,200% on Sea Ltd…
- 800% on Marvel…
And that’s just a very small sample of the gains it has identified in hindsight.
But that’s not the most exciting part…
Today, I’m handing over the keys to this incredible technology to you to use in your own trading – and I’m going to show you exactly how to use it to master these volatile market conditions and take your trading to the next level.
Check out all of the details here.
Sincerely,
Tom Gentile
America’s #1 Pattern Trader
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