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A lot, if not everything, in the world of finance, is based on trust: trust that the future would be better than the present; trust that a dollar bill would guarantee an equivalent worth of goods and services at a given point in time; and trust that wealth created would be safe, accessible, and transferable at all times.
So, when events like those unfolding over the past fortnight undermine one or more of the aforementioned collective beliefs, the ensuing risks can quickly become systemic and existential.
On February 24, KPMG signed an audit report giving SVB Financial, Silicon Valley Bank’s parent company, a clean bill of health for 2022.
On March 10, federal regulators announced that they had taken control of the bank, which reopened the following Monday as Deposit Insurance National Bank of Santa Clara.

This was the second-biggest bank failure since Washington Mutual’s collapse during the height of the 2008 financial crisis. It was soon followed by the third-biggest, with Signature Bank shuttered by the regulators to stem the fallout from Silicon Valley Bank’s failure.
The resulting crisis of confidence has somehow been contained with an assurance that all insured and uninsured depositors would get their money back, the announcement of a new lending program for banks, and 11 banks depositing $30 billion in the First Republic bank.
However, the contagion risk subsided only after claiming an illustrious victim from the other side of the Atlantic, with UBS agreeing to take over its troubled rival Credit Suisse for more than $3 billion in a deal engineered by Swiss regulators.
Since we are more or less up to speed, let’s look deeper into what can make banks seem unbankable in a little over two weeks.
What is a Bank Failure?
Banks earn their bread and butter by putting to work the money their depositors entrust with them.
While the money can be invested to acquire assets that generate returns to keep a bank operating, it comes with the obligation to pay its dues on time.
Simply put, depositors should be able to access their money whenever they want and need it. A failed bank fails to ensure that.
How Does it Happen?
As discussed above, lending financial institutions, such as banks, are also borrowers to their depositors. However, the operating model of banks is based on the belief that they won’t have to pay their depositors all at once.
So, after maintaining sufficient reserves to service its current liabilities, a bank becomes an investment vehicle providing capital to turn the wheels of the modern economy.
However, this model gets foiled when uncertainty and groupthink meet to make fear more contagious than any virus. Depositors, driven by concerns for the safety of their deposits, rush to the exits en masse, turning their fear into a self-fulfilling prophecy. This is called a bank run.
Although SVB was a big bank, its depositor base was relatively concentrated in the geographical region from which the bank derived its name.
As the Fed raised interest rates in its efforts to fight the persistent inflation in a red-hot economy, the “ultra-safe” long-term U.S. Treasury securities in which the bank invested its burgeoning deposits suffered significant markdowns.
As the going got tough for the frothier tech companies and venture capital-backed startups amid increased borrowing costs, the bank’s clients began to dip into their deposits. The bank had to convert its paper losses into real ones to meet its payment obligations.
On March 8, SBV announced that it booked a $1.8 billion loss after selling some of its investments to cover increasing withdrawals.
As Moody’s downgraded SVB Financial, panic spread through texts and social media. Depositors began pulling their money out of the bank. The consequent snowball effect overwhelmed the bank with an attempted withdrawal of $42 billion by the time the bank closed for business on March 9.
What Does it Mean For Stocks?
Given how modern finance is structured, banks play an instrumental role in the way we hold and manage our money.

So, when the reliability of the banking system is compromised, it justifiably sends shockwaves across the entire economy, and, by extension, the ripples get reflected in the stock market too.
As SVB Bank’s stock crashed after the disclosure of a $1.8 billion realized loss from the sale of marked-down securities and the announcement of plans to raise $2.25 billion by selling a mix of common and preferred stock, the panic wiped out a combined $52 billion in the market value of JPMorgan Chase, Bank of America, Wells Fargo and Citigroup.
Going forward, the fate of the stocks would depend on the effectiveness of the measures, such as the lending program, in keeping banks well-capitalized for unpredictable but inevitable shocks in the weeks, months, and years ahead.
What Does it Mean For the Overall Market?
In his speech after the recent FOMC meeting, Federal Reserve chair Jerome Powell acknowledged the stresses banks have lately come under. He also suggested that tightening financial conditions arising from stringent lending decisions by banks to preserve liquidity could induce a credit crunch.
Since tight lending would have the same effect as interest rate hikes, the banking crisis, if managed and contained effectively, could be the mixed blessing that convinces the central bank to soften its stance and achieve the elusive “soft landing.”
Best,The MarketClub Team[email protected]

High-growth tech stocks have had to bear the consequences of the Federal Reserve’s aggressive rate hikes since last year. Amid concerns of a recession, most tech stocks have suffered a correction in their share prices due to fears of softening demand.
However, with continued digital transformation and the growing interest in AI, the tech industry is well-positioned to grow.
Earlier this year, Fed Chair Jerome Powell said the “disinflationary process” had begun. However, inflation still remains above the central bank’s comfort level, as evidenced by February’s CPI report.
The Fed has indicated that it intends to hike rates higher than previously predicted.
Although the recent bank failures are likely to stop the Fed from undertaking a bigger rate hike at the policy meeting, it is expected to return to its hiking spree once the banking crisis eases.

However, that should not make investors stay away from quality tech stocks.
Wedbush analyst Dan Ives believes that cost-cutting by major tech giants will likely show improved profits this year. The recent banking crisis made investors count on reliable tech stocks, as is evident from the tech-heavy Nasdaq Composite’s 13.3% increase year-to-date and 3.2% gain over the past month. According to Gartner, worldwide IT spending is expected to rise 2.4% year-over-year to $4.50 trillion in 2023.
Several technical indicators look positive for Microsoft Corporation (MSFT) and Salesforce, Inc. (CRM), so it may be worth investing in these stocks now.
Microsoft Corporation (MSFT)
MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. It has a market capitalization of $2.03 trillion.
MSFT’s revenue grew at a CAGR of 15% over the past three years. Its net income grew at a CAGR of 15% over the past three years. In addition, its EBIT grew at a CAGR of 19.2% in the same time frame.
In terms of trailing-12-month gross profit margin, MSFT’s 68.16% is 35.9% higher than the 50.17% industry average. Likewise, its 47.99% trailing-12-month EBITDA margin is 386.5% higher than the industry average of 9.87%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 12.14%, compared to the industry average of 2.44%.
In terms of forward EV/S, MSFT’s 9.65x is 257.9% higher than the 2.70x industry average. Its 9.94x forward P/B is 173% higher than the 3.64x industry average. Likewise, its 9.75x forward P/S is 268.9% higher than the 2.64x industry average.
For the second quarter ended December 31, 2022, MSFT’s total revenues increased 2% year-over-year to $52.75 billion. The company’s adjusted net income declined 7% year-over-year to $17.37 billion. Also, its adjusted EPS came in at $2.32, representing a decrease of 6% year-over-year.
MSFT’s EPS and revenue for the quarter ending March 31, 2023, are expected to increase 0.6% and 3.5% year-over-year to $2.23 and $51.08 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 14.2% year-to-date to close the last trading session at $273.78.
MSFT’s stock is trading above its 50-day and 200-day moving averages of $252.30 and $252.51, respectively, indicating an uptrend.
According to MarketClub’s Trade Triangles, MSFT’s long-term trend has been UP since February 2, 2023. In addition, its intermediate and short-term trends have been UP since March 14, 2023.
Source: MarketClub
The Trade Triangles are our proprietary indicators, comprised of weighted factors that include (but are not necessarily limited to) price change, percentage change, moving averages, and new highs/lows. The Trade Triangles point in the direction of short-term, intermediate, and long-term trends, looking for periods of alignment and, therefore, intense swings in price.
In terms of the Chart Analysis Score, MSFT scored +100 on a scale from -100 (strong downtrend) to +100 (strong uptrend), indicating that the uptrend will likely continue.

The Chart Analysis Score measures trend strength and direction based on five different timing thresholds. This tool considers intraday price action; new daily, weekly, and monthly highs and lows; and moving averages.
Click here to see the latest Score and Signals for MSFT.
Salesforce, Inc. (CRM)
CRM is a customer relationship management technology provider. The company’s Customer 360 platform enables its customers to work together to deliver connected experiences. It has a market capitalization of $188.68 billion.
On January 12, 2023, Walmart Commerce Technologies announced its partnership with CRM to provide retailers with technologies and services that power frictionless local pickup and delivery for shoppers everywhere.
CRM’s Executive VP, Alliances & Channels, Tyler Prince, said, “Salesforce is thrilled to partner with Walmart as it transforms its business and further expands into the digital technology market.”
“Through this partnership with Salesforce, Walmart can grow its business in new ways by productizing its proven retail processes – empowering other retailers to create new and personalized experiences for their customers,” he added.
CRM’s revenue grew at a CAGR of 22.4% over the past three years. Its net income grew at a CAGR of 18.2% over the past three years. In addition, its EBIT grew at a CAGR of 58.9% in the same time frame.
CRM’s 73.34% trailing-12-month gross profit margin is 46.2% higher than the 50.17% industry average. Likewise, its 17.34% trailing-12-month EBITDA margin is 75.8% higher than the 9.87% industry average. Furthermore, the stock’s 32.60% trailing-12-month levered FCF margin is 436.4% higher than the 6.08% industry average.

In terms of forward Price/Sales, CRM’s 5.45x is 106.2% higher than the 2.64x industry average. Its 5.52x forward EV/Sales is 104.7% higher than the 2.70x industry average. On the other hand, its 2.92x forward P/B is 19.9% lower than the 3.64x industry average. Likewise, its 1.10x forward non-GAAP PEG is 32.8% lower than the 1.64x industry average.
CRM’s total revenue for the fourth quarter ended January 31, 2023, increased 14.4% year-over-year to $8.38 billion. Its non-GAAP income from operations rose 123.3% year-over-year to $2.45 billion. The company’s non-GAAP net income increased 96.4% year-over-year to $1.66 billion. In addition, its non-GAAP EPS came in at $1.68, representing an increase of 100% year-over-year.
Analysts expect CRM’s EPS and revenue for the quarter ending April 30, 2023, to increase 64.5% and 10.2% year-over-year to $1.61 and $8.17 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. The stock has gained 42.3% year-to-date to close the last trading session at $188.68.
Trade Triangles show that CRM has been trending UP for all three-time horizons. The long-term for CRM has been UP since January 27, 2023, while its intermediate-term trend has been up since March 2, 2023, respectively. Its short-term trend has been UP since March 14, 2023.
Source: MarketClub
In terms of the Chart Analysis Score, CRM scored +100 on a scale from -100 (strong downtrend) to +100 (strong uptrend), indicating that the uptrend will likely continue.

Click here to see the latest Score and Signals for CRM.
What’s Next for These Tech Stock?
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According to The New York Federal Reserve, consumer debt is at record highs.
At the end of 2022, U.S. consumer debt across all categories totaled $16.9 trillion. That was an increase of $1.3 trillion from one year ago. What’s more alarming is that in 2019, the total U.S. consumer debt was $14.14 trillion.
So, while higher interest rates likely fueled some of the increase from 2021 to 2022, increasing consumer debt had occurred even before the Federal Reserve began its rate hikes.
What is concerning about the increasing consumer debt is what it says about the future of our economy. In 2017, the International Monetary Fund released a report that showed a correlation between rising consumer debt and the economy’s health. The IMF concluded that rising consumer debt was good for the economy in the short term.
For example, the more consumers take out auto loans, the more the automotive industry, from the auto parts manufacturers to the big auto manufacturers to even the auto dealers, will experience an increase in labor needs. This increase reduces unemployment, which increases overall economic activity and spurs the economy.

Consumer debt rises related to the housing industry have the same effect but on an even larger scale. It’s been reported that for every new home built in the U.S., 1.5 new jobs are created.
The IMF study clearly says that while consumer debt is increasing, there are economic benefits. But, in three to five years, those positive effects are reversed. The report states that growth is slower than it would have been if the debt had not increased, and more importantly, the odds of a financial crisis increased.
The IMF went into detail about how much consumer debt needs to grow in order to raise the likelihood of a financial crisis. Their calculations indicate that a five percent increase in the ratio of household debt to the gross domestic product over a three-year period forecasts a 1.25 percentage point decline in inflation-adjusted growth three years in the future.
If we look at nominal GDP from January 2019 to January 2023, it has gone up by almost 24.5%. Consumer debt during that same timeframe has gone up by 19.5%. That doesn’t sound bad since GDP is growing faster than consumer debt.
However, we are looking at nominal GDP, which considers price inflation. That means if inflation causes prices of goods and services to rise, those increases are enough to cause GDP to go higher, even if actual output remains the same.
And this is an excellent time to remind everyone that since the middle of 2021, we have been experiencing relatively high inflation levels, both worldwide and in the U.S.
So what does all of this mean for investors?
Well, it could mean nothing, and the economy continues moving along, strong and healthy.
Or it could very well be predicting the next recession.
The IMF study would indicate the economy is still strong since GDP is growing faster than debt. Currently, the household debt to GDP ratio is at 76.83%, essentially the same as it was three years ago when it sat at 76.41%.
But, household debt is at an all-time high during a period of high inflation. All while the Federal Reserve continues to raise interest rates, making that high debt load even more expensive.
Due to all the factors floating around, it shouldn’t shock market participants if default rates rise over the next few months, which could be enough to start the next recession.
We all should be watching defaults on all forms of debt, not just mortgage debt, which helped fuel the financial crisis in 07-08. Auto loans, personal loans, and credit card debt must be closely monitored as a sign that the start of the next recession is close.

Suppose you are wondering how you can benefit from rising consumer debt and the potential debt crisis caused by a high number of possible defaults. The best way would be to short the market as a whole.
There are no Exchange Traded Funds that focus on the companies that would be negatively impacted the most by high defaults, but it would cause the major indexes to decline. Thus if you buy something like the UltraPro Short S&P 500 ETF (SPXU) or the Direxion Daily S&P 500 Bear 3X Shares ETF (SPXS) you would have three times the inverse leverage of the S&P 500 and benefit significantly if the market were to head south.
Remember, though, at this time, the consumer debt doesn’t indicate the market is ready to roll over, but that could change anytime. Watch for either debt to continue increasing rapidly, or massive defaults as your cues to get short the market.
Matt ThalmanINO.com ContributorFollow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.