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Fears over the health of the wider US banking sector have swung back into the limelight this week. Over the weekend, JP Morgan agreed to buy First Republic Bank which became the second-largest bank in US history to fail. This comes only several weeks after SVB collapsed and Signature Bank was forcibly closed. Yesterday, trading in two US regional banks, Pac West and Western Alliance, was halted by US regulators amidst heavy selling which saw both bank stocks cratering lower. Central banks and authorities have been keen to stress that conditions are vastly different from 2008 and that we are not headed for a global financial crisis. However, uncertainty is building and with banking customers looking to avoid losses, further bank runs and liquidity issues look increasingly likely.
 

Near-Term Risks for Banking Stocks 

With the Fed having hiked rates again, financial conditions in the US have tightened once more. Against this backdrop, speculators are looking for the next weak US banking stocks to pile in on. So far, the private sector has been able to shoulder the weight of the burden with various deals and joint efforts being undertaken to help underpin struggling banks for the good of the wider banking sector. However, if conditions deteriorate significantly authorities might well be forced to intervene. Near-term, banking stocks look vulnerable to further downside given the growing uncertainty in the market. One great chart to keep an eye on is the SPDR Select Sector Fund XLF which tracks US regional banks.
 

Technical Views

XLF

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The market has been trending lower following the reversal from 2022 highs, framed by a broad bearish channel. Recently, price has stalled along support at the 30.42 level while 33.37 holds overhead as key resistance. With momentum studies turned bearish, risks are pointed to the downside with a break of 30.42 seen opening the way for a test of 26.82 thereafter. 

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