The incredible S&P 500 (SPY) and Nasdaq (QQQ) rallies overcame bearish skeptics. This momentum shows severe risks of losing momentum.
Fed Chair Jerome Powell did not raise interest rates in its June 2023 meeting. This gives regional banks more time to adjust their risk model for increasing interest rates. Within the next six months, the central bank will add another 50 bps.
Smaller banks have high Commercial Real Estate loan holdings. Corporations are working at a furious pace to undo the work-from-home movement. They require at least three days a week (over 50%) of staff to return to work. Without that, lease rates are too high for businesses to maintain. This puts small banks at risk of holding worthless CREs.
The ominous risks put pressure on the big banks. Although they will withstand CRE troubles, they are not immune to an economic slowdown. Watch out for JPMorgan (JPM), Morgan Stanley (MS), Bank of America (BAC), Citi (C), and Wells Fargo (WFC) shares falling from here. They are the leading indicator for the risk of stocks crashing this summer.
Stocks might fall at an orderly pace in the summer. Still, any decline hurts a portfolio and is a risk that investors must consider.
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