Quote (Bazi @ Oct 13 2020 08:25pm)
How do you have a sustained market rally this Powerful without finance sector? If banks in some universe did fail or became even more cash strapped than now that would have tremendous ripple effects ?
We're a long way from that happening, but if banks were in a scenario similar to 2008 this would be a result of your average joe having less/no disposable income. They may struggle paying their debts which potentially 100m investors are dependent on the contractual rights to the cashflows of his mortage that they purchased in a security from an investment bank, but...bank SOFPs are far better now and there is far more government intervention.
If there was a doomsday scenario though, the main effects on large companies would be: 1) A reduction in demand for their products/services (depends on the co, more 'elastic' products i.e. luxury goods, hit the hardest; 2) Lack of debt funding available, which could be pretty bad for struggling companies in particular. You'd see a lot more rights issues and placing but that's bad news for a company because it costs a shit load more than a bank loan and would only be suitable for huge projects - but what about funding short-medium term positive NPV projects? They won't be funded --> lower ROCE/productivity. Large companies aren't the problem, it's the SME's. I would be more worried owning small cap funds than your Disneys etc.
Commercial banks are struggling because they are losing margin on lower interest rates, delinquencies and they are tightening credit on new mortgages/loans. Their results can be an intimation of macroeconomic health and I will be looking at Wells Fargo's results in particular.
Investment banks are doing fine due to higher volumes of stock market trading since the initial dip in March. Options trading in particular really helped to offset the negative effect of COVID-related write offs on their bottom line in Q2. They (Goldman, JP) will almost certainly have decent results in Q3