“Markets can remain irrational longer than you can remain solvent.”
That observation came from the late economist John Maynard Keynes. Today, it’s fear, not the fundamentals, that are driving short-term sentiment.
Silicon Valley Bank and Signature failed, and the government stepped in to guarantee all deposits of the two banks. And, the Fed implemented a new lending program. Crisis solved.
Advance to late April.
First Republic says it lost a substantial number of deposits since the beginning of the year. The FDIC steps in and sells the deposits and most assets to JPMorgan. “This part of the crisis is over,” JPMorgan CEO says.
Well, not so fast.
Analysts are now warning that regional bank stocks are stuck in a negative feedback loop. The fundamentals don’t seem to matter. Fear and sentiment do. Following First Republic’s demise, short sellers and the market eye their next target, which right now is California-based PacWest Bancorp.
“Markets can remain irrational longer than you can remain solvent.” It’s just one more reason why a well-crafted diversified investment portfolio tailored to your long-term goals can help you manage short-term volatility.