US stocks suffered a setback on Thursday as credit woes began to show their face along with a slowing economy.
“When you see one cockroach, there are probably more,” JPMorgan CEO Jaime Dimon said on his bank’s quarterly earnings call yesterday.
Dimon referred to the bankruptcies earlier this fall of auto parts supplier First Brands and subprime auto lender Tricolor Holdings. Dimon’s comments drew a response from co-CEO of private equity player Blue Owl Capital Mark Lipschultz, who said banks should comb their own books for “cockroaches”.
Nevertheless, the First Brands bankruptcy has stung its banker, Jefferies ( JEF ), which has fallen 25% over the past month, including a 9% drop Thursday. For its part, Jefferies said this week that it could easily withstand any losses due to First Brands.
On Thursday, credit concerns increased Zions Bancorp ( ZION ) last night said it had booked a $50 million charge against two loans taken out by borrowers who are now facing legal problems. Then there’s Western Alliance (WAL), which said it had sued a commercial property borrower alleging fraud. ZION and WAL are down 12% and 10% respectively on Thursday, leading to heavy losses in the regional banking sector.
The broader stock market is handling the news decently for now, with the S&P 500 down just 0.8%, but the “risk off” sentiment has helped send gold higher by another 2.5% to another record near $4,300 per ounce. ounces.
As for the digital version of gold, bitcoin sees no such bid, and investors now continue to treat it as just another “risk on” asset. The price of BTC fell as low as $107,500 on Thursday before recovering modestly to the current $108,000, down 3.2% over the past 24 hours and 11% over the past seven days.
Seed of a bull moves?
Recent history may offer hope to the bulls. Other traditional market crashes — think the March 2020 Covid plunge or the March 2023 bank crash — also sent bitcoin sharply lower along with stock indexes.
The government’s response, however – a major easing of fiscal and monetary policy – set the stage for epic bull runs for BTC.
The seeds of that answer appear to be already being sniffed out in the bond market. The 10-year Treasury yield fell eight basis points today to 3.97%, the lowest level since April’s “Liberation Day” market panic.
The two-year Treasury yield – which would be the most sensitive to an easing of monetary policy – has fallen to 3.42%, a level not seen in more than three years.
A check of short-term interest rate futures on the CME shows traders are now pricing in a 3.2% chance of a 50 basis point rate cut at the Fed’s policy meeting later this month. Before today these odds were 0.0%. Traders also increased bets on 75 basis points of rate cuts by the end of the year to an 11% chance, up from a 0% chance a day ago.
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