In recent weeks the primary market debate has been about interest rates, the Fed's hawkishness, and whether slower economic growth has been discounted or not. Despite higher rates and a steady rise in the anticipated peak rate later this year, the market has been ignoring the Fed to a large degree. Indeed the bulls have been fighting the Fed with a good amount of success, which has made the central bank even more determined to hike rates to control inflation.
All of that changed last week when SVB Financial (SIVB) , the holding company of Silicon Valley Bank, imploded and was abruptly shut down. It suddenly became painfully obvious that the Fed's rate hikes had enough impact to push the sixteenth largest bank in the country into liquidation.
Suddenly the whole economic debate has shifted, which is good news for traders.
There is increased volatility, heavier rotational action, and stronger emotions. All those things create more movement and more opportunity.
We still have major economic uncertainties, but the resolution of the bear market is accelerating. The entire financial sector has been badly shaken up, and we will have some real drama in the next two days as the market reacts to the CPI and PPI reports and tries to anticipate what the Fed will do with interest rates moving forward.
There are two important things to remember as you consider this action.
1. This is macro-driven action that tends to be highly correlated. Individual stock-picking does not work very well in this environment. If you want to trade, the best approach is to trade sectors and indexes. The SPDR Regional Banking ETF (KRE) is producing big swings right now and offering some major moves for traders that like high-risk/high-return opportunities.
I'm watching indexes for opportunities, especially the Russell 2000 ETF (IWM) , which has given back its gains for 2023 and is sitting right at support near the December lows. If CPI comes in light and the Fed does temper its hawkishness, this is the index play I will be watching.
Regarding sectors, I think biotechnology may be closer to washed out compared to other groups. There were two mergers in the group Monday, including Pfizer (PFE) agreeing to acquire Seagen (SGEN) . Biotechnology tends to be a leading group. It was the first to top out back in 2021 and the first to hit bottom in 2022. (XBI) is the ETF, and if you like leverage, there is the Direxion Daily S&P Biotech Bull 3X Shares (LABU) and Direxion Daily S&P Biotech Bear 3X Shares (LABD) .
2. Macro-driven market action eventually leads to good stock-picking. When the indexes are driving the action, then all stocks get hit regardless of their individual merit. The best stocks become even better values when institutions are dumping indexes. I have a long list of mainly small-caps that I think are good values but need market conditions to shift a bit before they are in buying positions. One of my top picks for the year is Beyond Air (XAIR) , which is showing some life Monday as it gives an investor presentation.
Some other small-caps that are getting beaten up for no real reason than market conditions are CECO Environmental (CECO) , Rain Oncology (RAIN) , Origin Materials (ORGN) , Sensus Healthcare (SRTS) , Hims & Hers Health (HIMS) , Ocular Therapeutix (OCUL) , and Xeris Biopharma (XERS) . Many more are going to develop as this bear market involves.
The good news is that the chaos in the financial sector has given the market a good hard shakeup, and the ensuing volatility is creating opportunity. There will be lots of whining about this market, but if you have cash on hand, then you should be optimistic about what lies ahead.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider these names to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
