US stocks are taking a hit on Thursday as credit problems begin to show their face along with a slowing economy.
“When you see one cockroach, there are probably more,” JPMorgan CEO Jaime Dimon said on his bank’s quarterly earnings conference call yesterday.
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 player Blue Owl Capital’s co-CEO Mark Lipschultz, who said banks should check their own books for “cockroaches.”
However, First Brands’ bankruptcy has hit its banker, Jefferies (JEF), which has plunged 25% over the past month, including a 9% drop on Thursday. For its part, Jefferies said this week that it could easily bear any losses due to First Brands.
Adding to the credit concerns Thursday was Zions Bancorp (ZION), which last night said it had recorded a $50 million charge against two loans taken out by borrowers now facing legal problems. Then there’s Western Alliance (WAL), which said it had sued a commercial real estate borrower alleging fraud. ZION and WAL fell 12% and 10%, respectively, on Thursday, triggering heavy losses in the regional banking sector.
The broader stock market is handling the news decently for now, with the S&P 500 falling just 0.8%, but the “risk off” sentiment has helped gold rise another 2.5% to another record high of nearly $4,300 per ounce.
As for the digital version of gold, bitcoin It does not see any offer of this type, and investors for now continue to treat it as another risky asset. The price of BTC fell as low as $107,500 on Thursday before a modest recovery to the current $108,000, down 3.2% in the last 24 hours and 11% in the last seven days.
Seeds of a bullish movement?
Recent history could give bulls hope. Other traditional market crises (think the Covid crash of March 2020 or the bank failures of March 2023) also caused Bitcoin to fall sharply along with stock indices.
However, the government’s response (a major easing of fiscal and monetary policy) set the stage for epic bull runs for BTC.
The seeds of that answer already seem to be being sniffed 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 yield on two-year Treasury bonds – which would be the most sensitive to an easing of monetary policy – has fallen to 3.42%, a level not seen in more than three years.
A review of short-term rate futures on the CME finds that traders now put a 3.2% chance of a 50 basis point rate cut at the Federal Reserve policy meeting later this month. Before today, those odds were 0.0%. Traders have also increased bets on 75 basis point rate cuts by the end of the year to an 11% probability versus a 0% probability a day ago.
Read more: Bitcoin falls below $109,000; Adjusting liquidity is key to crypto struggles
