This is the best buying opportunity in retail banks in years, Baird says
CNBCNov 30, 2022
The Facts
The stock market slid on Tuesday afternoon, after credit rating agency Moody's downgraded ratings for 10 small and regional lenders and placed six banks on review for a potential downgrade, dropping the value of global bank stocks.
The Dow Jones fell 159 points (0.45%), while the S&P 500 dipped 0.42%. Banking giant Goldman Sachs led the decline, trading 2% lower, while JPMorgan Chase and the S&P Bank ETF dropped 0.6% and 1.3% respectively.
The Spin
Narrative A
Between rocketing interest rates and the collapse of three major US banking players, the financial sector seems prepared for whatever might come its way. The banking sector has shown remarkable resilience this year, and Moody's is merely following in the footsteps of Fitch's downgrade of the US sovereign credit rating. Compared to what the banks have already faced, this move will have a negligible impact and is not a cause for serious alarm.
Narrative B
There is a real risk of crisis in the US banking sector, the beginning of which may have already been marked by the high-profile failures of Silicon Valley Bank and First Republic. Rising interest rates have eroded the value of banks by trillions of dollars, as commercial real estate loan defaults have jumped in the face of remote work. It is the small and regional banks, such as those that Moody's has downgraded, that underwrite businesses and support swathes of the US economy. The detrimental repercussions of this development should not be underestimated.