Writing on the Wall?

Igor Manukhov - Mar 17, 2023

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The banks which made the news last week (Silicon Valley Bank, Credit Swiss, First Republic Bank and Signature Bank) were underperforming the overall market since late 2021 or earlier.

The last couple of weeks felt like 2008 all over again. One bank went bust (Silicon Valley Bank), while others stand on the brink of collapse (Credit Swiss, First Republic, Signature Bank). I won't sugar coat it, these troubles caught me by surprise. Luckily, we did not have any significant exposure to US banks in general or any of these troubled banks in particular. Below is the reason why.

I talked about the concept of relative strength many times before, and how powerful it can be for spotting emerging trends or avoiding bad situations. Below are relative strength lines that compare stock performance of these four banks to the S&P500. A rising line means that the bank is outperforming the overall market, whereas a downward trending line suggests that the bank is underperforming the overall market. I only become interested in a particular investment if it is doing better than the market, otherwise, why bother.

As you can see below, all four banks (Silicon Valley Bank is in blue, Credit Suisse is in red, First Republic Bank is in purple, Signature bank is in green) have been underperforming the S&P500 since early 2022, so I had not reason to own them. I had no idea that they might be in so much trouble, but I did not need to know that. The fact they were underperforming the overall market was enough for me not to get involved.

This is the power of relative strength.

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Writing on the Wall?

Igor Manukhov - Mar 17, 2023

The banks which made the news last week (Silicon Valley Bank, Credit Swiss, First Republic Bank and Signature Bank) were underperforming the overall market since late 2021 or earlier.

Igor Manukhov

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