S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Laser breakthrough could send stock soaring 2,467% (Ad)
Applied Materials stock is Ray Dalio's favorite in this new cycle
Palo Alto Networks aims at cyber security leadership
Laser breakthrough could send stock soaring 2,467% (Ad)
Spotify sounding better to analysts as company tunes into profits
3 Reasons the Capital One-Discover merger is a big deal
Stop buying AI stocks! (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Laser breakthrough could send stock soaring 2,467% (Ad)
Applied Materials stock is Ray Dalio's favorite in this new cycle
Palo Alto Networks aims at cyber security leadership
Laser breakthrough could send stock soaring 2,467% (Ad)
Spotify sounding better to analysts as company tunes into profits
3 Reasons the Capital One-Discover merger is a big deal
Stop buying AI stocks! (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Laser breakthrough could send stock soaring 2,467% (Ad)
Applied Materials stock is Ray Dalio's favorite in this new cycle
Palo Alto Networks aims at cyber security leadership
Laser breakthrough could send stock soaring 2,467% (Ad)
Spotify sounding better to analysts as company tunes into profits
3 Reasons the Capital One-Discover merger is a big deal
Stop buying AI stocks! (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Laser breakthrough could send stock soaring 2,467% (Ad)
Applied Materials stock is Ray Dalio's favorite in this new cycle
Palo Alto Networks aims at cyber security leadership
Laser breakthrough could send stock soaring 2,467% (Ad)
Spotify sounding better to analysts as company tunes into profits
3 Reasons the Capital One-Discover merger is a big deal
Stop buying AI stocks! (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast

Don't Miss Out: $2 Trillion Could Head to the Banking Sector

Federal Reserve Bailouts

Key Points

  • The Fed is stepping in once again to restore order to the financial markets.
  • A massive liquidity program will be available to banks and other lenders.
  • Regional banks are the most at risk of going under, and the uptake of the program could be "significant"
  • 5 stocks we like better than JPMorgan Chase & Co.

Analysts at JP Morgan NYSE: JPM said yesterday that up to $2 trillion in liquidity could be added to the U.S. banking system.

Funds will be made available through the Federal Reserve’s Bank Term Funding Program that was announced as banks face a liquidity crunch.

A lack of liquidity was chalked up as the reason for the recent collapse of Silicon Valley Bank NASDAQ: SIVB, as well as Signature Bank NASDAQ: SBNY and the Fed seems determined to prevent this contagion from spreading to the rest of the US banking system.

The lack of liquidity by banks can be broadly surmised to be a mismatch in investment maturities and cash flow, as well as the difference between short and long interest rates. However, it was also noted by analysts at JP Morgan that the largest banks in the US still held around $3 trillion in U.S. reserves, and that it was “unlikely” they would need to tap into the program.

Instead, it was predicted that smaller banks and other lenders with weaker balance sheets will be the ones asking for help, as well as companies that potentially do not strictly need the facility. Bloomberg took commentary from other analysts who also stated that the uptake of the program is expected to be significant.

Which banks will likely need it?

The falling stock prices of banking shares could see some relief as the Fed will publish the names of entities that receive funding from the program weekly.

Morningstar reported yesterday that regional banks are struggling with liquidity the most, such as First Republic Bank NYSE: FRC and Huntington Bancshares NASDAQ: HBAN.


The implication here is twofold: smaller regional lenders with high loan-to-deposit ratios that take the Fed’s hand will see some relief in their stock prices as this information is made publicly available.

Likewise, a rotation in investors’ portfolios is likely to take place as people take increasingly defensive posturing. Instead of owning shares in smaller banks, people will rotate to those that offer a higher margin of safety, such as Bank of America NYSE: BAC or Citigroup NYSE: C.

Why else is liquidity important?

Banks are incentivized to take the facility for more than just securing their books. Liquidity is fundamentally how banks make money, and with scaling liquidity comes scaling revenues and earnings.

Banks can issue more loans and purchase additional investments when it has higher levels of liquidity, leading to more profits. Institutions can also borrow funds at a lower cost since their lenders consider it less risky, increasing the net interest margin.

Thus, in an abstract way, the funding program could be seen as a stimulus program for banks, and it seems likely that they will see it that way too. Businesses of all stripes and financial health took up stimulus packages during the pandemic just to be on the safe side and to preserve cash flow. Nervous and ambitious banking executives seeing the liquidity crunch unfold are incentivized to apply for a myriad of reasons. Thus, a recovery for bank stocks seems likely across the board.

What’s next?

The steady path towards higher interest rates and lower inflation may have hit a snag, as the Fed seems less inclined to raise rates while also lending a hand to banks in times of increased uncertainty. 

Due to these reasons the bond market has rallied as investors take shelter. The Vanguard Total Bond Market ETF NASDAQ: BND is up 2.44% over the past five days. 

If volatility continues, however, banks may face higher borrowing costs if investors begin to demand higher yields in exchange for taking on additional risk. Bond prices are also inversely correlated to interest rates, which is part of the reason why they have rallied over the past week since the Fed is unlikely to hike them further in the short term.

Smaller banks may also find themselves in a deeper liquidity hole if investors’ appetites become even more bearish and turn away from bonds due to losing their stable footing, thus leaving precious metals like gold as becoming a more attractive alternative.

→ Critical asset just had biggest fall on record (From Stansberry Research) (Ad)

Should you invest $1,000 in JPMorgan Chase & Co. right now?

Before you consider JPMorgan Chase & Co., you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and JPMorgan Chase & Co. wasn't on the list.

While JPMorgan Chase & Co. currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

(Almost) Everything You Need To Know About The EV Market Cover

Click the link below and we'll send you MarketBeat's guide to investing in electric vehicle technologies (EV) and which EV stocks show the most promise.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
JPMorgan Chase & Co. (JPM)
4.3394 of 5 stars
$180.96+0.7%2.32%11.16Moderate Buy$179.11
Signature Bank (SBNY)
2.0725 of 5 stars
$2.35+17.2%N/A0.11Buy$10.00
First Republic Bank (FRC)
3.1945 of 5 stars
$0.00-100.0%0.31Reduce$55.67
Huntington Bancshares (HBAN)
4.7135 of 5 stars
$12.87+0.9%4.82%10.38Moderate Buy$13.50
Bank of America (BAC)
4.852 of 5 stars
$33.70-0.8%2.85%10.98Moderate Buy$35.53
Citigroup (C)
4.8585 of 5 stars
$55.34-0.1%3.83%13.87Moderate Buy$57.03
Compare These Stocks  Add These Stocks to My Watchlist 


Featured Articles and Offers

3 High-Yielding, Small Banks to Buy on the Dip

3 High-Yielding, Small Banks to Buy on the Dip

Results from big banks have the financial sector on the cusp of a correction. The takeaway is that business remains sound, the consumer is resilient and cash flow is ample.

Search Headlines: