The countdown is on. Earnings season is set to kick off Friday with the banks, one of ours among them. The whole sector came under heavy pressure last month after the collapse of Silicon Valley Bank. How the banks deliver could set the market tone in the coming weeks. Much of this mini-banking crisis ties back to the Federal Reserve’s war on inflation, with the rapid rise in interest rates pressuring loan values and increasing competition for deposits. Central bankers are not solely at fault for what happened at SVB on March 10 as management there was clearly out to lunch. But many economists feel the Fed does share some blame for keeping money so cheap for so long coming out of the Covid pandemic and subsequently having little choice but to hike interest rates at a breakneck speed to thwart spiraling prices. Currently, another quarter-point rate hike is widely expected at the Fed’s May meeting. However, there’s a growing minority who believe the recent banking stumbles should keep the Fed on hold. Jim said Monday that such a pause could spark a big stock market rally while keeping rates high enough for banks to make money. But, first things first. Ahead of Friday’s bank reports, which include first-quarter numbers from Club holding Wells Fargo (WFC), we’re watching three main things: the mix of deposits and loans and the resulting money made on the difference in the form of net interest margin (NIM). How these dynamics play out will factor into the Fed’s next rate move — and as a result, market sentiment. Deposits The chilling effect of the Silicon Valley Bank failure has been palpable. As highlighted by Jim Cramer in his Sunday column , total U.S. commercial banking deposits dropped by nearly $65 billion on a seasonally adjusted basis for the week ended March 29 , nearly three weeks out from SVB’s failure. That’s 10 straight weekly declines , according to bank assets and liabilities data from the Fed. It’s a harsh reminder that accounts in excess of $250,000…
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