Bank Collapses Are a Good Thing for Megacap Stocks

You would think banks failing would cause bad returns in the stock market due to the economic and financial implications that result when banks fail.

But that’s not the case for Megacap Stock at the moment. In the last three months – Meta, NVIDIA, and Tesla have notched huge gains, with huge spikes around March 10th, the date Silicon Valley Bank announced its failure. Apple and Microsoft have had some good gains in the last three months, but not as much as the other names. Here is the chart below.

Now why in the world would the biggest market cap names rack up huge gains after banks are failing?

The above chart shows the dip in borrowing costs over the last month. Since the Fed’s fight against inflation has taken a back seat to financial stability, the cost to borrow money has fallen and led to a rally in high growth names that borrow a ton of money.

Tomorrow is a big day for economic data! I will be keeping an eye on jobs, GDP, and Core PCE. The Core PCE numbers will show if the Fed’s previous rate hikes have made any progress on inflation. If it comes in higher than 4.3%, the Fed may keep its foot on the hiking pedal.