Stock futures initially indicated further sharp declines on Friday. However, they rebounded after a couple of positive analyst reports regarding Jefferies and Zions Bancorp. Jefferies received an upgrade to “outperform” from Oppenheimer, with analyst Chris Kotowski highlighting that Jefferies’ exposure to the now-bankrupt autoparts maker First Brands is limited. Similarly, Baird analyst David George upgraded Zions to “outperform,” asserting that the recent sell-off in the stock was “overdone.”
Zions experienced a significant drop of 13% on Thursday, while Jefferies slid by 10.6%. Both stocks saw gains in premarket trading on Friday following their upgrades. Financials, in general, rose broadly, as traders speculated that this flare-up is more attributable to specific issues rather than signaling a major systemic problem.
Adam Crisafulli of Vital Knowledge stated, “We don’t think there are systemic credit problems for banks. Most of what we’re seeing so far is a function of a few specific situations (First Brands and TriColor), while credit quality broadly is tracking better than anticipated based on all the bank reports over the last few days.” He added that, similar to the aftermath of the China trade-driven slump from the previous Friday (10/10), he doesn’t view this dip as a compelling buying opportunity—at least not yet.
Ben Emons of FedWatch Advisors echoed these sentiments, noting that while this episode may evoke memories of the 2023 sell-off triggered by the collapses of Silicon Valley Bank and First Republic, “These losses are now relatively ‘known.'” Moody’s also reassured that the banking system and private credit markets remain sound despite the ongoing concerns surrounding these loans.
In a note to clients on Friday, JPMorgan traders remarked that the rapid downturn in this sector might be more reflective of the industry’s historical context. “While we are questioning why all of these credit ‘one-offs’ are seemingly occurring in a short period of time, the reality is that even though these exposures may be ‘well-contained’ and have a ‘limited financial impact,’ this is an industry where investors—especially those new to this sector—tend to ‘sell first and ask questions later,’ particularly when elevated credit concerns arise,” they stated. “We believe this is primarily due to the fact that there has not been a downturn or recession in over a decade, which would have allowed regional banks to test their loan portfolios during times of stress.”
