If you're a fan of TV classics, you'll likely recognize Milburn Drysdale's name... Actor and comedian Raymond Bailey played Drysdale in the 1960s show The Beverly Hillbillies.
Banks Need to Adapt to Today's Smarter Depositors
By Marc Gerstein, director of research, Chaikin Analytics
If you're a fan of TV classics, you'll likely recognize Milburn Drysdale's name...
Actor and comedian Raymond Bailey played Drysdale in the 1960s show The Beverly Hillbillies. Specifically, he was the head of the fictional Commerce Bank of Beverly Hills.
Drysdale lived next door to Jed Clampett, an accidental oil millionaire fresh from the Ozarks. Clampett and his family also happened to be Drysdale's biggest depositors.
As the protector of the Clampett clan's fortune, Drysdale was under a lot of stress...
You see, Jed Clampett always asked to visit the bank's vault to see his money. He wanted to make sure all $96 million was safe and sound.
But the thing is... the money wasn't in the bank's vault.
Like all bankers, Drysdale was lending the Clampetts' money out to others. So over the course of the series, he had to keep making excuses about why Jed Clampett couldn't visit.
If Clampett had realized the money wasn't there, he likely would've gotten his shotgun.
Now, I realize I'm talking about a TV show. The Commerce Bank of Beverly Hills didn't exist.
But this example does show the relationship between real-life banks and a lot of folks...
Jed Clampett didn't know how the banking sector really worked. And throughout history, millions of people across the U.S. have been in similar situations with their money.
But now, we're living in a different era...
Everyday Americans are now smarter with their money. That's making it harder for bankers like Milburn Drysdale to "make money with other people's money" like in the old days...
After soaring 40% this year, the Nasdaq is faltering. And with more bank failures on the horizon – plus the Fed's relentless push for higher rates – Wall Street veteran Marc Chaikin is ready to share a critical update with you. He called this bull market way back in January... predicted a "run on the banks" five months in advance... and today, he's preparing for one final twist in the weeks to come. Click here for an important update.
While the stock market hums along, a much bigger (and more important) market is flashing a huge warning today. One that will definitely affect stocks... housing... and the entire economy. Ignoring this signal would be a big mistake. But billionaires (and some of the world's best analysts) LOVE this kind of turmoil. Because it's a chance to buy world-class investments for pennies on the dollar. The same setup led to 772% gains in 2009. Get the full story here.
Banking is a complicated business. It involves all sorts of intricacies like regulation, loan growth, asset portfolios, maturity-matching approaches, reserves, fee income, and mergers.
But at its core, this industry is about one thing...
Banks want to maximize the difference between the money they bring in through the interest they get from borrowers and the money they send out in interest to depositors.
Rising interest rates used to be good for banks. Their lending rates rise along with the Federal Reserve's benchmark interest rate. That means more money coming in the door.
And banks stayed as stingy as possible for as long as they could about sending out money.
The challenge is stretching the gap as wide as they can. That's the "margin" for banks.
Jed Clampett never understood the gap. And for generations, real-life consumers didn't care much about it. But the story is a lot different with computers at our fingertips nowadays...
In short, depositors are using all sorts of data to force the banks to pay more interest.
Back in March, I pointed out how free web portals like NerdWallet (NRDS) and Bankrate make it easy for regular people to "comparison shop" for banks. And folks can quickly move their money to the banks that pay higher interest rates for deposits.
Commercial and institutional depositors are also thinking about interest...
In the second quarter, JPMorgan Chase (JPM) said it lost about 10% of deposits from these types of customers over the previous year. At Bank of America (BAC), corporate customers are keeping 60% of their cash in interest-bearing accounts. That's up from 30% in 2022.
The point is simple...
Today's savvier depositors are less tolerant of windfall bank margins. When the Fed raises rates, they expect to share the wealth a lot more than they ever have before.
This trend isn't reversing...
Banks will need to adapt to smarter customers and tighter margins. That won't happen overnight. And the path will likely be full of volatility.
In fact, the Power Gauge tells us it's wise to be cautious in this space right now...
Here are the current Power Bar ratios for the SPDR S&P Bank Fund (KBE) and the SPDR S&P Regional Banking Fund (KRE). As you can see, they're overwhelmingly "bearish"...
In the end, I hope my takeaway is clear...
Rising rates on their own are no longer a signal to buy bank stocks. It's becoming tougher for these institutions to make money with other people's money as they did in the past.
And the Power Gauge helps us see the situation clearly...
Now isn't the time to invest in bank stocks. Instead, watch closely from the sidelines.
Good investing,
Marc Gerstein
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
+0.64%
11
15
4
S&P 500
+0.61%
139
259
101
Nasdaq
+0.75%
47
43
9
Small Caps
+0.87%
485
970
480
Bonds
+0.10%
Communication Services
+1.22%
6
11
3
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks remain somewhat Bullish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Real Estate
+2.40%
Industrials
+1.23%
Information Technology
+1.15%
Communication
+0.99%
Utilities
+0.84%
Financial
+0.71%
Materials
+0.68%
Discretionary
+0.50%
Staples
+0.30%
Health Care
+0.05%
Energy
-0.08%
* * * *
Industry Focus
Homebuilders Services
17
16
1
Over the past 6 months, the Homebuilders subsector (XHB) has outperformed the S&P 500 by +7.47%. Its Power Bar ratio, which measures future potential, is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #3 of 21 subsectors.
Top Stocks
MHO
M/I Homes, Inc.
PHM
PulteGroup, Inc.
TOL
Toll Brothers, Inc.
* * * *
Top Movers
Gainers
BSX
+5.97%
MMM
+5.22%
WDC
+4.86%
WBD
+4.24%
GNRC
+3.69%
Losers
FTRE
-2.37%
TECH
-2.37%
MOS
-1.82%
DXCM
-1.46%
RCL
-1.45%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
HPE, HPQ
CTLT
SJM
No earnings reporting today.
Earnings Surprises
HEI HEICO Corporation
Q3
$0.76
Beat by $0.05
* * * *
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