Happy April Fools’ Day...TOMORROW (What? There’s no “MoneyShow Market Minute” since the holiday is on a Saturday, so I had to be early!)
Equities are a bit higher in the early going along with crude oil. Gold and silver are flat along with Treasuries, while the dollar is a bit higher.
On the news front...
Former President Donald Trump has been indicted by a Manhattan grand jury, a move with widespread political and historical implications...but no perceptible market impact. The exact criminal charges haven’t been unsealed yet, but Trump will likely surrender and be arraigned in New York next week. He denied any wrongdoing in a statement yesterday.
As for the banking sector, it continues to bleed deposits in the wake of the recent bank failures. But an even-BIGGER force long-term is the yawning “rate/APY gap.”
In short, even as the Federal Reserve jacked interest rates up sharply and quickly, banks refused to pass on the lion’s share of those increases to depositors. They did so even as yields on more market-sensitive vehicles like money market funds and short-term U.S. Treasuries surged alongside.
Banks counted on inertia (depositors being lazy or deciding the yield gap wasn’t big enough to bother) and friction (depositors wanting to avoid the hassle of moving money between institutions or vehicles) to keep deposits “sticky.” But now they’re fleeing in droves. Money funds pulled in $66 billion in the week of March 29 alone.
Ultimately, the deposit flight could hurt bank profits as they raise savings account and CD yields to stem the outflows. It could also restrict bank lending by draining liquidity from the system. But shares of the SPDR S&P Regional Banking ETF (KRE) have stabilized for a few days at least.
Finally, federal regulators are probing Norfolk Southern (NSC) for its safety practices. That follows a series of derailments in the last few months, including the most notorious one in East Palestine, Ohio, on Feb. 3. Current and former employees criticized the company’s operations in this Wall Street Journal story, though CEO Alan Shaw claims the railroad operator’s track record is solid.
