Another bank failure, another underperforming share price. Philadelphia-based Republic First Bank was closed down on Friday, April 26, and the assets were sold to Fulton Bank. Republic First became the first bank failure of 2024. Given our outlook for the stock market and the economy, it will probably not be the last, writes Murray Gunn, head of global research at Elliott Wave International.

We track the probability of bank failures within the KBW Bank Index by looking at the relative performance of share prices. If the share price is in an underperforming trend, it tells us that something is not right and, therefore, the chance of an underlying weakness emerging is high.

We’re working on expanding our coverage to the hundreds of banks in the US. But in the meantime, we would strongly urge you to check the relative performance of your own bank’s share price.

The chart below shows that the share price of Republic First was underperforming the iShares US Regional Banks ETF (IAT) since 2022, with that trend accelerating lower in the summer of 2023. It was a warning that something was up at the bank and, sure enough, existential problems have now emerged. The Republic First Bank failure should not be a surprise to anyone who was tracking the share price.

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Is the collapse a harbinger of things to come? We have been raising a red flag about major issues in the banking system for years. Investors got a first whiff of the burgeoning debacles in March and May of last year, which saw three of the seven largest bank failures in US history.

We remain concerned that these are early warnings of a much deeper malady. Stay prudent.

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