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Thursday’s sell-off driven by concerns about loan redit quality in the banking sector doesn’t have investors worried too much right now. The major averages fell broadly in the previous session after some bad loans raised concerns over the health of regional banks and investment bank Jefferies. The Dow Jones Industrial Average fell around 300 points Thursday, while the S & P 500 and Nasdaq Composite lost 0.6% and 0.5%, respectively. Stock futures initially pointed to further sharp declines Friday, but came off their lows after a couple of positive analyst reports on Jefferies and Zions Bancorp. The former got an upgrade to outperform at Oppenheimer, with analyst Chris Kotowski noting Jefferies’ exposure to now-bankrupt autoparts maker First Brands is limited . Baird analyst David George also upgraded Zions to outperform, saying the sell-off in the stock was “overdone.” ZION 5D mountain ZION 5-day chart Zions dropped 13% on Thursday, while Jefferies slid 10.6%. Both names were higher in the premarket Friday after being upgraded, however. Financials also rose broadly, with traders betting this flare up is more due to idiosyncratic drivers that a warning of a major systemic issue. “We don’t think there are systemic credit problems for banks – most of what we’re seeing so far is a function of a few specific situations (First Brands and TriColor) while credit quality broadly if anything is tracking better than anticipated (based on all the bank reports over the last few days),” wrote Adam Crisafulli of Vital Knowledge. “However, as was the case after the China trade-driven slump from last Fri (10/10), we don’t think this dip is a massively compelling opportunity (at least not yet). Ben Emons of FedWatch Advisors also noted that while this episode brings flashbacks to the 2023 sell-off sparked by collapses of Silicon Valley Bank and First Republic, “These losses are now relatively ‘known.'” Moody’s also said the banking system and private credit markets were sound despite the concerns around these loans. JPMorgan traders said in a note to clients Friday that the quick downturn in this space may be more due to the sector’s history. “While we are questioning why all of these credit ‘one offs’ are seemingly occurring in a short period of time, the reality is that even though these exposures may be “well-contained” and have a ‘limited financial impact,’ this is an industry where investors —especially those that are new to this sector — tend to ‘sell first and ask questions later,’ especially when it comes to elevated credit concerns,” JPMorgan traders said. “We believe this is primarily due to the idea that there has not been a downturn/recession in over a decade that would have allowed regional banks to test their loan portfolios in times of stress.”
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