Regional banks stumble but META rises - Creand
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Regional banks stumble but META rises.

The S&P 500 and Dow Jones closed at all-time highs on Friday and all the major indices had gains for the week except the Russell 2000.  The underperformance of the small cap index was related to weakness in regional bank stocks after New York Community Bank (NYCB) reported that its provision for credit losses in the fourth quarter totaled $552 million.  To make matters worse, the bank declared that it would be cutting its dividend by 70% in order to increase capital. This news gave investors a chilling reminder of the 2023 regional bank collapse.  Not surprisingly, the SPDR S&P Regional Banking ETF (KRE) dropped 7.2% during the week. 

Meanwhile, Megacap stocks outperformed the broader market as a group following earnings results from several names within the group. Alphabet (GOOG) and Microsoft (MSFT) reported results on Tuesday. Alphabet suffered a 6.7% decline last week while Microsoft had a modest gain of 1.8%.  Apple (AAPL), (AMZN), and Meta Platforms (META) all reported earnings on Thursday. AAPL declined 3.4% on the week but AMZN jumped 8.0% and META rocketed up 20.5%.  META posted revenue growth of nearly 25%, which is the company’s strongest growth in over two years.  META also announced a pair of shareholder-friendly initiatives, including its first ever quarterly dividend of $0.50/share and a $50 billion increase to its share repurchase program. The Vanguard Mega Cap Growth ETF (MGK) climbed 2.1% this week. 

In addition to earnings from some of the top Megacaps, this week’s price action was driven by a recalibration of rate cut expectations following a strong economic Jobs Report and the FOMC decision on Wednesday. The committee voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%.  This move was expected, but the market was hoping for a dovish shift in the Fed’s policy statement. Instead, the statement declared that, “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Fed Chairman Jerome Powell reiterated this view in his subsequent press conference. Mr. Powell spoke specifically about the possibility of a March rate cut, saying in part “I don’t think it is likely that the Committee will reach a level of confidence by the time of the March meeting to identify March at as the time to do that (cut rates), but that is to be seen.”

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Charles Castillo
Senior Portfolio Manager. Creand Wealth Management en Miami