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This is the 4th Time the Banking System is Doing This | SP500 Rally Will Hit a Wall
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This is the 4th Time the Banking System is Doing This | SP500 Rally Will Hit a Wall

Introduction

The S&P 500 is rallying as the market begins to front run a Federal Reserve pivot. However, the banking system is vulnerable and liquidity ratios are coming down violently.

Market Recovery and Banking System

The economy is weakening enough and inflation is coming down enough to begin pricing in the recovery that's going to come once the Federal Reserve begins to ease policy again. Meanwhile, bank liquidity ratios have been plummeting, investors have been moving out of the banking system, and into money market ETFs that have a much higher yield because of tightening over the last year.

  • Banks are lending less money.
  • We are currently entering the last and most dangerous phase of the credit cycle.
  • There are real signs that this is having an impact on the economy.

Three Phases Leading Into a Recession

There are three phases leading into a recession: (1) The Federal Reserve Titans monetary policy; (2) Domestic banks tighten their lending standards; (3) A decrease in loans and leases leads to businesses being unable to get loans or refinance, which causes economic growth to stop.

  • Loan growth has moved up rapidly until recently.
  • Tightening lending standards has often led to recessions.
  • If people can't get loans or refinance, then you head into a recession.

Conclusion

Despite banks tightening so much over the past year, stocks continue moving higher. However, there are real signs that this is having an impact on the economy.

  • Loan growth has been in an economic boom until recently.
  • The last phase of a recession is when stocks are crashing, unemployment is rising, and corporate earnings are contracting.

The Relationship Between Lending Standards and Loan Growth

This section discusses the relationship between lending standards and loan growth, specifically in times of economic tightening.

Historical Examples of Tightening Lending Standards

  • In 1990, loans began to roll over hard in Q1 after lending standards were tightened. A few months later, a recession occurred.
  • In Q4 of 2000, loans and leases began to roll over after lending standards were tightened. A couple of quarters later, a recession occurred.
  • Between Q1 and Q2 of 2008, banks and leases began to roll over as lending standards tightened. This occurred at the beginning of the recession.

Stock Market Reactions

  • In 1990, the stock market quickly saw through the recession after an initial rise in unemployment rates.
  • In Q4 of 2000, the tech bubble popping caused valuations to contract initially before the second part of the bear market was due to pricing in a recession.
  • In 2008, unemployment had already risen leading up to tightening lending standards.

Small Business Credit Survey

  • Small businesses have reported that credit is becoming more difficult to obtain.

The Power of Fed Pivot on Market Prices

This section discusses how a Fed pivot can affect market prices.

Bullishness Back in 2022

  • The economy was strong back then with no signs of heading into a recession.
  • If the Fed had been more dovish back then, it could have led to higher market prices.

Current Market Prices

  • The market is currently pricing in a Fed pivot, which can lead to higher market prices.

Model Portfolio Updates

In this section, the speaker talks about a revamp of a feature that allows easy access to updates made on the model portfolio. The performance of the portfolio is tracked against the S&P 500, and all weights and current positions are included.

Special Feature

  • A complete revamp of the feature
  • Easy access to updates made on the model portfolio
  • Performance tracked against S&P 500
  • All weights and current positions included

Tracking Performance Against S&P 500

This section discusses how their website actively tracks the performance of trades transparently against the S&P 500 Index. The goal is to help subscribers outperform the market consistently with trade ideas provided on this portfolio.

Transparent Tracking

  • Website actively tracks performance of trades against S&P 500 Index
  • Goal is to help subscribers outperform market consistently with trade ideas provided on this portfolio

Conclusion

In this section, the speaker concludes by encouraging viewers to subscribe and get a free trial for access to these features. They also remind viewers to like and subscribe if they enjoyed watching.

Final Thoughts

  • Encourages viewers to subscribe for access to features
  • Reminds viewers to like and subscribe if they enjoyed watching
Video description

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