U.S. stocks take a hit Thursday as credit woes begin to emerge alongside a slowing economy.
“When you see one cockroach, there are probably more,” JPMorgan CEO Jaime Dimon said yesterday during his bank’s quarterly earnings conference call.
Dimon was referring to the bankruptcies earlier this fall of auto parts supplier First Brands and subprime auto lender Tricolor Holdings. Dimon’s comments prompted a response from private equity firm Blue Owl Capital’s co-CEO Mark Lipschultz, who said banks should search their own books for “cockroaches.”
Still, First Brands’ bankruptcy stung its banker Jefferies (JEF), which has fallen 25% over the past month, including a 9% decline on Thursday. For its part, Jefferies said this week that it could easily withstand any losses from First Brands.
Adding to the credit concerns Thursday evening was Zions Bancorp (ZION), which said it had recorded a $50 million charge on two loans taken out by borrowers who are now facing legal problems. Then there’s Western Alliance (WAL), which said it sued a commercial real estate borrower for fraud. ZION and WAL are down 12% and 10% respectively on Thursday, leading to significant losses in the regional banking sector.
The stock market as a whole is handling the news well so far, with the S&P 500 down just 0.8%, but risk-off sentiment helped send gold up another 2.5% to a new record high of nearly $4,300 an ounce.
As for the digital version of gold, bitcoin does not see such an offer, investors continuing for the moment to treat it as a simple “risky” asset among others. BTC price fell as low as $107,500 on Thursday before a modest rally to the current level of $108,000, down 3.2% in the last 24 hours and 11% in the last seven days.
The seeds of an upward movement?
Recent history could give the bulls hope. Other traditional market disruptions – think the Covid collapse in March 2020 or the bank failures of March 2023 – have also caused bitcoin to fall sharply, as have stock indexes.
However, the government’s response – a vast easing of fiscal and monetary policy – has paved the way for epic bull runs for BTC.
The seeds of this response already seem to be spotted in the bond market. The 10-year Treasury yield is down eight basis points today to 3.97%, its lowest level since April’s “Liberation Day” market panic.
The two-year Treasury yield – which would be most sensitive to an easing of monetary policy – fell to 3.42%, a level not seen in more than three years.
A check of short-term rate futures at the CME reveals that traders now estimate a 3.2% chance of a 50 basis point rate cut at the Fed’s policy meeting later this month. Before today, these odds were 0.0%. Traders also increased their bets on a rate cut of 75 basis points by the end of the year, to a probability of 11% from a probability of 0% a day ago.
Read more: Bitcoin falls below $109,000; Liquidity crunch is key to crypto struggles
