June 1, 2023
The S&P 500 (SPX) is trading above 4200 with cyclical leadership and broad sector participation. The improvement in market internals is encouraging, but closing levels are more important. Changing our tactical bearish outlook will also require several days of cyclical sector leadership and confirmation from cross market indicators like the copper/gold ratio.
Yesterday, several bank CEOs talked down loan growth during a sell-side Financial Services conference. The impact of slowing loan growth is bearish for bank earnings and provides more anecdotal evidence of Fed rate hikes hitting the real economy. The recently released ‘Problem Bank List’ from the FDIC expanded from 39 to 43 in Q1’23 with total assets from problem lenders increasing from $10.5B to $58B QoQ. Using the most recent Senior Loan Officer Survey, the probability for a recession starting in the next year is 100%.