Janet Yellen’s bank guarantee comes with difficulty

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Regional banks popped up — but quickly fell behind in after-hours trading, in a sign of continued fragility.

• Investors took their faith in the possibility of government support – or at least they did during normal trading hours. The First Republic surged 30% after Yellen’s speech. Backwest Bancorp jumped 18.77% and Kikcorp rose 9.34%. But all three gave back gains after the bell, especially First Republic, which was last down 9%.

• Analysts predict that gold prices – now at $1,941.6 an ounce – could breach the all-time highs of $2,075 in the coming weeks. One analyst believes that gold could rise to $2,600. Traders are flocking to gold as a safe-haven asset amid the banking chaos.

• forefront Morgan Stanley is now “outright bullish” on stocks in Asia and emerging markets. The bank believes that the Hang Seng Index in Hong Kong could jump as much as 28% from current levels by the end of this year.

In a sign of how fragile the banking system is, U.S. regional banks rebounded sharply in the hope of just a government guarantee, then pared back some of those gains after normal business hours.

Note that Yellen did not say that the government would unequivocally help all small banks. These are her exact words, with the emphasis I added: “Similar deeds could be justified if the enterprises are smaller Suffering from deposit inflows that pose a risk of infection. In other words, her statement had two important qualifications that banks must meet before the government will consider intervention: first, the bank must suffer a recession; second, it must be significant enough that its collapse affects the rest of the banking sector.

Essentially, this isn’t much different from what Yellen said last Thursday — that the government would enter a situation where “failure to protect uninsured depositors will create systemic risk and significant economic and financial consequences.” But investor confidence is currently so low that any reassuring comment, vague as it may sound, will seem like a promise.

Not that reassuring comments are necessarily bad. Indeed, Yellen’s comments on Tuesday were good for the markets. The Dow Jones Industrial Average rose 0.98%. The S&P 500 rose 1.30% and reached 4,002.87, marking the first time since March 6 that it has ended the day above 4,000 since March 6. The Nasdaq Composite jumped 1.58%.

Tomorrow we will hear from the Fed and find out if it is raising interest rates even amid the turmoil in the banks. Markets are putting it at an 86% chance of a quarter point increase – although that number is mostly guesswork, because the Fed has been unusually quiet – if understandably – about its intentions.

Ironically, analysts believe the Fed should raise interest rates not only because inflation remains uncomfortably high, but also because it signals confidence that the Fed can “walk and chew gum at the same time,” Michael Jabin said. , chief US economist at Bank of America. In fact, stopping might have the opposite effect of spreading fear — “It would be the same as acknowledging it [Fed officials] Learn something the markets probably don’t know,” which would be “devastating” for the markets, said Johan Grahn, head of ETF strategy at Allianz Investment Management.

And while markets appeared surprisingly resilient even amid two weeks of bank shock, it’s not clear how much further devastation the markets can absorb — and nobody wants to know.

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