Banking Risks Are A Wake-Up Call For Stock Bulls After The SVB Blowout

Investors in the stock market were recently given a sobering reminder of the hazards posed by unrest in the banking sector.

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Venture investors, such as Peter Thiel's Founders Fund, pushed portfolio companies to reduce their exposure to SVB, which only made the company's problems worse. As a result of client withdrawal fears and the pressure from rising interest rates, analysts dropped their ratings on the company; Raymond James downgraded the bank to market perform, while Truist Securities lowered it to hold.

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Truist analyst Brandon King stated in a note, "We believe that there is too much uncertainty to suggest the company to investors given the increased possibility of rapid deposit outflows.

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After a selloff driven by worries over banking sector liquidity, US stocks are on track to have their worst week of the year. Portfolio losses pushed SVB Financial Group, a significant lender to start-up businesses, to raise money quickly. The unease is growing on both sides of the Atlantic, with European banks falling to their lowest levels since September and the region's benchmark index falling significantly.

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Arnaud Cayla, senior chief executive officer at Cholet Dupont Asset Management, wrote in a note to clients, "By exposing its weakness, SVB has somewhat opened Pandora's box. It stands for "a significant psychological impact that has roused the dormant demons of the market."

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Following a conflicting data on US payrolls on Friday, stocks saw some relief as Europe's benchmark pared some of its losses and US futures turned positive. But, the banking problems have increased general concerns about how rising rates will affect the economy. In light of the increasing pressure from the bond market, stocks may still decline further.

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Notwithstanding Wall Street's sharp response on Thursday, strategists believe there are few chances that the problems at SVB would spread to other large, well-capitalized lenders.

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