Sell in May is here as banking weakness returns

• Banking woes and debt ceiling drama weigh on risk appetite
• Treasury yields tumble as odds for a potential June hike completely disappear
• Fed starts two-day meeting, still expected to raise rates by 25bps tomorrow.

Sell in May decided it didn’t need to wait for the Fed.  Wall Street is quickly hitting the sell button as banking turmoil appears it is not going away anytime soon and was ready to focus on the next weakest link, potentially distressed lenders with tremendous exposure to commercial real estate.  Risk appetite did not stand a chance as traders focused on lingering doubts over the regional banks, rising recession odds, and growing risks that the US could default on its debt next month.

Today’s JOLTS data provided some optimism that the labor market is softening and that could allow the Fed to refrain from remaining aggressive with their rate hiking campaign. The signs for the labor market have been somewhat mixed, but broadly it appears to be softening.

US Data

The labor market is clearly cooling as employers start to pull back job offers and as layoffs rise.  The JOLTS reading for March saw job vacancies tumble to 9.59 million jobs, much lower than both the consensus estimate of 9.736 million and upwardly prior reading of 9.974 million.  Layoffs rose to the highest levels seen since December 2020, while the quits-rate edged lower to 2.50%. 

The labor market has a lot of cracks, but it is still holding up and unless we clearly see the economy in a recession, wage pressures might remain sticky.     

Stocks are struggling here as investors watch a key part of the economy enter freefall.  PacWest and Western Alliance shares are tumbling hard as banking tumult appears it is back.  Regional banking ETF continues its downtrend, breaking below the lows seen during First Republic Bank’s key moment of turmoil.

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