Bankruptcies rise, plus regional banks, housing affordability, and the Strategic Petroleum Reserve
Discover more from The Sandbox Daily
Bankruptcies rise, plus regional banks, housing affordability, and the Strategic Petroleum Reserve
The Sandbox Daily (6.7.2023)
Welcome, Sandbox friends.
Today’s Daily discusses:
U.S. bankruptcies are increasing sharply this year
regional banks bounce back
housing affordability crisis at historic levels
refilling the Strategic Petroleum Reserve
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 +1.78% | Dow +0.27% | S&P 500 -0.38% | Nasdaq 100 -1.75%
FIXED INCOME: Barclays Agg Bond -0.53% | High Yield -0.55% | 2yr UST 4.552% | 10yr UST 3.797%
COMMODITIES: Brent Crude +0.80% to $76.90/barrel. Gold -1.28% to $1,956.2/oz.
BITCOIN: -2.35% to $26,371
US DOLLAR INDEX: +0.01% to 104.134
CBOE EQUITY PUT/CALL RATIO: 0.55
VIX: -0.14% to 13.94
Quote of the day
“Risk is what’s left over after you think you’ve thought of everything.”
- Carl Richards, The Behavior Gap
U.S. bankruptcies YTD totals highest since 2010
Through the first 5 months of the year, corporate bankruptcies are being filed at the fastest pace since 2010.
S&P Global Market Intelligence recorded 54 corporate bankruptcy petitions in May, including 8 large companies (those with more than $500 million in liabilities). The recent filings bring the year-to-date total to 286 as of May 31st.
While the Consumer Discretionary sector still accounts for the highest number of bankruptcy filings (37) year to date, the Financials sector experienced a windfall of filings in March and April, however it appears that the pressure on regional banks has subsided for now.
Well-known brands that succumbed to Chapter 11 this year include Bed Bath & Beyond, Party City, Vice Media, and mattress maker Serta Simmons.
Source: S&P Global Market Intelligence
Regional banks bounce back
After a rough spring in which the smaller regional banks fell -44%, the S&P Regional Banking SPDR ETF (KRE) has quickly stabilized and started rocketing higher – now up +23.56% from the lows on May 4th.
Not only are these stocks an excellent indicator to measure risk appetite, but banks represent the most significant industry weighting in the small-cap equity indexes.
KRE is reclaiming a critical level of former support, while momentum is accelerating higher having reached its highest level in four months.
As long as this economically sensitive group remains above this key support level, it’s likely that a tradable low is in. This is also a positive sign for the overall market, as it supports the sector rotation taking place since last week.
Source: All Star Charts
Housing affordability crisis at historic levels
Each week, Redfin Corporation – the Seattle-based operator of residential real estate brokerage – puts out interesting, high-frequency data on what is transpiring in the housing market, often offering up some rather sobering charts and trends.
The 1st one shows that the inflation-adjusted monthly mortgage payment has ramped up to close at a 34-year high, assuming the median single-family home with a 30-year fixed-rate mortgage and 20% down payment.
And this chart shows the dramatic spike in the past three years:
Even adjusting for the rise in household income over time, affordability has still worsened significantly.
Given this information, most would expect housing prices should be falling sharply – perhaps 10% to 20% – to bring affordability back to historical levels. However, this isn't happening because the decline in affordability is being met simultaneously with a decline in supply, since roughly half of homeowners with a mortgage have locked in a rate of 4% or lower – so there’s very little incentive for many to sell!
So, as this final chart shows, the number of buyers still far exceeds the number of sellers:
Source: Wall Street Journal, Redfin, A Wealth of Common Sense, Newsweek, The Irrelevant Investor
Refilling the Strategic Petroleum Reserve (SPR)
The pattern of drawdowns from the Strategic Petroleum Reserve (SPR) since the beginning of 2021 is unsustainable.
The 283 million barrels released in the last 2 years took 25 years to accumulate.
The market has been closely watching for any indication that the U.S. government would begin refilling the Strategic Petroleum Reserve, as its purchases are bound to tighten the market. The sour crude grades sought by the Energy Department are already in high demand as OPEC+ cuts output. Any additional pull on domestic barrels could send oil prices higher, potentially raising gasoline prices in the middle of the summer driving season.
Source: Horizon Kinetics, Bloomberg
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.