Private credit worries. Idiosyncratic loan defaults. They started taking down shares of specialty lenders and Business Development Companies (BDC) months ago. But diversified financials held firm. Until now.
On Friday, the financial sector got pummeled – with both the SPDR S&P Regional Banking ETF (KRE) and the Financial Select Sector SPDR Fund (XLF) dropping sharply. In fact, KRE tanked more than 5%. That was its worst one-day drop since mid-October, as you can see in the MoneyShow Chart of the Day.
Source: StockCharts
I’ve covered the underlying issues in private credit before (See this piece, for instance.) But I’ve also noted that broader indicators of credit stress have held up – and the pain was largely contained to lenders and sectors more directly involved.
Now, that’s starting to change. And it’s not just worries about private credit loan defaults that have markets on edge, either.
Stocks throughout the financial industry are also sagging amid fears AI will disrupt their highly profitable business models. Specifically, investors are asking: If AI software can do more sophisticated tax and financial planning, help investors manage their own wealth, or easily compare prices for even complex insurance coverage…who needs “Big Finance?”
The action definitely bears watching. We NEED sectors like financials, materials, and industrials to continue to hang in with technology taking on water. If they can’t, the broader market is going to struggle.
No, I’m not giving up my big-picture “Be Bold” thesis. But I will continue to note that Q1 – and maybe even H1 – are going to be rougher than we’re used to. Plan (and trade) accordingly!
