Three Ways to Benefit from Weakness in the Financial Sector

While the collapse of Signature Bank and Silicon Valley Bank sent shockwaves through the financial markets, it may be fueling a rebound elsewhere. 

After panic ripped through markets, analysts are sounding the alarm on some stocks that have well overshot their downside. Moreover, some analysts have suggested that the added pressure on the financial sector could soften the course of future Fed rate hikes, which would likely help certain risk assets.

Whether you’re looking for a short-term win or to strike up a long-term position at a great price, you’ll want to keep an eye on these assets in the coming days.   

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BTC

Bitcoin bulls have claimed the digital currency is a way for investors to shield themselves against government moves, such as quantitative easing and looser monetary policy, which they say erodes the value of fiat currency. Industry insiders are saying that the anticipation of a slower pace of interest rate hikes from the Federal Reserve is helping bitcoin. Proponents also point to bitcoin’s finite supply as a critical feature of it being a store of value.

“The events around the failure of SVB and other banks have also shone a spotlight on the power of decentralized currencies that people can fully custody and own,” said Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.  “Decentralized finance is beginning to hit home in terms of a concept to many more people now.”

Bitcoin is up more than 70% this year, beating major stock indexes and commodities.

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Charles Schwab Corp. Common Stock (SCHW)

Charles Schwab shares plunged 34% over the past month along with regional banks as traders worried that they would have to sell their bond holdings early at significant losses to cover deposit withdrawals, like Silicon Valley Bank. However, CEO Walt Bettinger said in an interview with CNBC that Schwab is still experiencing “significant” asset inflows.

Credit Suisse analyst Bill Katz recently upgraded the brokerage firm to outperform from neutral, saying it’s time for investors to “take advantage of the sharp share price decline.” 

“We expect the net new asset (NNA) story to remain robust and capital ratios to quickly rebuild as we look into 2024-25, with the current value giving investors an opportunity to step into a high-quality, large-cap secular beneficiary,” Katz wrote.

The analyst’s $67.50 target price, down from $81.50 previously, means shares can rise another 24% from Friday’s closing price. The stock is down nearly 37% this year.

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Ark Innovation ETF (ARKK)

While most of Wall Street has been in panic mode amidst the banking crisis, Cathie Wood’s flagship Ark Innovation ETF (ARKK) reeled in $397 million in new money on Tuesday, March 14th, following the bank collapses, the biggest one-day inflow since April 2021, according to FactSet. Investors are piling into the innovation fund under the belief that the current banking chaos may cause the Federal Reserve to pull back on its rate hike campaign, which would benefit growth stocks. 

“Once the Fed stops looking backwards at CPI inflation and starts addressing the deflationary banking crisis that a 19-fold increase in short rates and an inverted yield have caused, we would not be surprised to see a return to the Roaring Twenties,” Wood said in a tweet.

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