Another Major Bank Bailed Out and Opposing Tech Earnings Announcement Led to a Stale Week on the Global Markets
With the big earnings season almost over, markets will be grateful for some respite
A brief overview:
- US and European markets are dragging their heels to a slow recovery
- First Republic Bank is on the rocks
- Pinterest and Snap are outshone by Meta in earnings season
- The market downturn hasn’t excluded real estate values
US and European markets are dragging their heels to a slow recovery
A disappointing mid week announcement revealed US economic growth had dropped since last quarter to 1.1% (on an annual basis), which is down from 2.6%.
Focussing on the positives though, it’s still growth! And this growth is still being driven by a strong jobs market.
With unemployment still relatively low for the comparatively low economic growth, this means that consumers are still spending. This is helping to keep the economy relatively buoyant.
The S&P 500 finished the week up by a cautious 0.6% for the week, and overall, the US markets are ticking over in a moderately optimistic way – for now at least.
Economic growth in Europe was also shown to be growing, by a tiny amount of 0.1% in the first quarter. Last year, it was at 1.3%.
Similarly to the US, earnings reports from various large companies have been strong and are keeping the markets (and economies) from moving into the red.
Some even suggest that the European earnings announcements are stronger than the US equivalents, owing to the rougher market conditions faced by Europe over the past 12 months.
The one thorn in the European markets sides was the banking sector, which drove losses on the EURO STOXX 600, which is the wider eurozone market index.
First Republic Bank is on the rocks
Last month saw the collapse of big name banks, including Silicon Valley, Silvergate and Credit Suisse.
Just as we thought it might be a thing of the past, First Republic announced last week that they had lost over $100 billion in deposits. In other words, customers withdrew a total of $100 billion from the bank following the sector’s worries.
This announcement caused shares to plummet 30%. But shares have fallen 95% in just over 2 months, so they’re already at rock bottom.
After the initial fall, a group of around 30 banks had clubbed together to bail out First Republic, which was once the 14th biggest bank in the USA.
As of Monday 1st May, it has been agreed that JP Morgan would buy out First Republic, alongside regulatory oversight in the US.
With the CEO of JP Morgan announcing that the “crisis is now over”, we can only hope that First Republic will spell the end of the banking sector wobbles.
Pinterest and Snap are outshone by Meta in earnings season
tech names talking about their profits last week, and shares fell 13% and 22% respectively after their announcements.
Both their struggles are tied to a drop in revenue coming in from advertising, as well as ongoing layoffs.
Meta, who owns Facebook and Instagram, outshone these two though, with positive revenue announcements that beat analysts expectations.
Alongside the profits, they’ve also announced a change in focus, specifically away from the costly and controversial Metaverse project and towards the more profitable Artificial Intelligence (AI).
The market downturn hasn’t excluded real estate
Real estate prices have been falling across the globe as a result of the tough economic and market conditions.
In Sweden, house prices have fallen 15%, whilst in neighbouring Denmark house prices have fallen by 5% in just 2023.
The Swedish real estate company SBB saw their stock price fall by 11.8% after announcing heavy losses of 17% due to these falling prices.
But it’s not all bad news. The real estate markets in the US, Germany and France have shown signs of settling after a similar downturn.
And the UK based property construction companies Persimmon and Taylor Wimpey both released statements last week suggesting that the worst is now over for the real estate markets as interest rates have hopefully peaked.