The Turmoil Will Not Show Up in Big Bank Earnings

It seems as though there is an air of calm and stability around the markets after several big banks beat earnings expectations Friday, which suggests that the turmoil of last month may now be behind us, and there has been a marked improvement since then.

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A so-called fear gauge called the CBOE Volatility Index (VIX) closed at its lowest level since early January 2022 last week, the so-called fear gauge. Deutsche Bank analysts also noted that the MOVE Index, which tracks Treasury market volatility, has fallen below where it was prior to Silicon Valley Bank's collapse last month.

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Although the sample size of the earnings released by JPMorgan Chase, Wells Fargo, Citigroup, and even the "super regional bank" PNC Financial Services does not provide us with enough confidence to conclude that there is a conclusion to the banking crisis.

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As investors digest regional bank earnings of regional banks in the week ahead, there is a strong possibility that the pressure will return to the market as they digest the results. After all, regional banks were the ones that were most adversely affected by the stress.

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Among those newly reported this week are Western Alliance Bancorp on Tuesday, U.S. Bancorp on Wednesday, and KeyCorp on Thursday. This is after Charles Schwab reported on Monday - whose shares fell sharply last month - and was in line with many others that were reported this week.

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The investors will know if there has been any success in averting a banking crisis or not when First Republic and PacWest Bancorp report next week.

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There will be a lot of focus on the financial situation of those regional lenders in the coming days, with outflows of deposits, an increasing amount of provisions for loan losses, and losses on securities held to maturity as the main concerns.

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Another indicator of the effects of this recession will be the Fed's latest "beige book" statement showing the state of the economy on Wednesday.

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In the recent weeks there has been a growth of confidence in the banking sector, but it can be fragile. And that is going to be tested in the near future.