Bigger Risk to worry about

The SVB shutdown is a bigger risk to worry about right now than interest rates. Faith in the smaller and regional banks can easily evaporate with deposits moving to the big 5 banks. There is a good chance that happens even if SVB is taken care of by merging with a bigger bank. Investors will need to take the right actions and mitigate the risks.

I want to focus my attention to the banks and financial sector for this note. First let’s review the trending of some of the popular ETFs in the sector:

I did not really need to draw that picture as I knew already that financials were in bad shape. But the picture does give a perspective and it is, after all, my process. And no matter what I will follow my process.

From a process perspective, I would go short the financials. In the current circumstances, I would focus on the banks, and more so on the regional banks (KRE).

The best-case scenario is that SVB is taken over by a big bank. If that happens the markets will breathe a sigh of relief and think that the issue is resolved. But is it? I do not think the issue is resolved just by that. And that is the best-case scenario.

So, in any case, I will be going short Financials and Banks.