| Thursday's Headlines 1. US markets rally as FDIC loosens bank restrictions 2. The Fed places its own rules on banks 3. US weekly unemployment tops 1.48 million 4. Speculators are making heavy bets against the market Markets Closed
 Image courtesy Andy Sacks/Getty
Markets Today U.S. markets were headed for another day of losses as surging outbreaks and higher-than-expected weekly unemployment claims were weighing on consumer sentiment. But the Federal Deposit Insurance Corporation (FDIC), the banking industry's regulator, announced it will be loosening restrictions on banks' abilities to invest in venture capital and speculative areas of the capital markets. The FDIC also said it would lower capital restrictions on books in their interbank trading activity of derivatives.
I'll explain further down, but the move essentially tore up the Volcker Rule, the rulebook for the banking industry created in the wake of the financial crisis, and allows banks to play it a little riskier. Investors loved that news, and they bid up all sectors of the market with indexes closing near session highs. Those gains are evaporating in after-hours trading, which is yet another indication of how fickle some investors can be at a time like this.
Banks and the financial sector are critical to the recovery, which is why the U.S. Federal Reserve and other central banks have been plying them with cash. Based on stubbornly high unemployment here in the U.S., and deteriorating personal finance conditions for tens of millions of Americans, those banks are going to need that money to backstop their customers, many of whom are filing for bankruptcy or are becoming seriously delinquent on their loans.
chart courtesy Deutsche Bank  [NEW READER SURVEY: As promised, we are running another two-week survey of our U.S.-based readers to gauge your sentiment and see what moves, if any, you have been making with your money given the market recovery. We'll share the results, as always, and we thank you for your time and participation.]
Headlines:
 chart courtesy Schwab Research
Banking on It U.S. banks got caught between two government agencies today, and the messages were very mixed.
The FDIC announced measures to make it easier to let banks invest in venture capital funds and also relax some limitations on derivatives trading. The moves represent a loosening of the so-called Volcker Rule, which was put in place in the wake of the great financial crisis to keep banks from sinking themselves with risky bets. It was named after former Federal Reserve chair Paul Volcker, who passed away in December.
Bank stocks and ETFs, which have been sold off in the past two weeks, rallied hard on the news, as investors anticipate billions of dollars in cash being freed up for lending and other purposes.  Not So Fast... Just as soon as the market closed, the Federal Reserve released the latest results of its stress tests. These are annual exams to determine if banks have enough cash on their books to stem a liquidity crisis or a run by customers. While the FDIC guarantees up to $500,000 in individual deposits, the Fed is worried about bank solvency, having witnessed many banks fail in 2008–09.
While the Fed said 33 of the nation's biggest banks were a, "source of strength," the Fed tightened rules around dividend payments and buybacks. Specifically, the Fed outlawed dividend increases by banks until further notice, and it placed restrictions on stock buybacks. The theory is that the Fed wants banks to use that capital as a cushion in the event of a prolonged economic downturn, not as a stimulant to boost their stock prices. Bank stocks reversed those gains as soon as the Fed released its results.
From an optics perspective, the Fed doesn't want to be seen lending trillions to banks in the name of saving the economy, only to watch them reward shareholders and executives. They've read "Too Big to Fail," and they don't want the sequel.  chart courtesy Options Clearing Corp.
Heavy Options Betting Two things caught our eye today: the heavy amount of options activity, and the volume of bets against the stock market looking out to the back half of the year. Options activity comes with volatility, and we've had plenty of it in 2020. We see it in professional options trading markets like the CME and CBOE among institutional investors, and we see it with new traders coming into the market for the first time. We see it through a spike in traffic to our options trading guides and searches related to options trading. But we also see it in the online broker activity of platforms like Schwab, E*TRADE, and Fidelity.
Options trading is a fun and fascinating way of engaging with the market, but it's very risky and not for beginners. If you are considering trading options, please read up and take some courses.
Our Essential Guide to Options is a good place to start.
Speculators Bet on Market Declines One way professional options traders bet on the future direction of the stock market is through what is known as the S&P 500 futures contract. Buying calls on those contracts is a future bet that markets will rise. Buying puts on those contracts is a bet that markets will fall.
According to recent data from Bloomberg and the CFTC, traders are buying a lot of puts on S&P 500 futures, betting this rally won't last.
chart courtesy Bloomberg 
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(chart courtesy YCHARTS)  Shares of oil companies, such as National Oilwell Varco, Noble Energy, and Pioneer Natural Resources, are up as demand for oil rises due to an increase in road traffic. Accenture's stock price rose by nearly 7.5% following the professional services company's better-then-expected Q3 earnings and revenue results.  Shares of Cabot Oil & Gas fell by over 4% as the energy company was formally charged with three environmental crimes for fracking violations committed in 2010. Retailer's Kohl's and The Gap were among the biggest losers in that sector today. Word of the Day The Volcker Rule is a federal regulation that generally prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with hedge funds and private equity funds, also called covered funds. The Volcker Rule aims to protect bank customers by preventing banks from making certain types of speculative investments that contributed to the 2008 financial crisis.  image courtesy americanhistory.si.edu
Today in History June 25, 1974: Texas Instruments and three of its key engineers, Jack S. Kilby, Jerry D. Merryman, and James H. VanTassel, received U.S. Patent No. 3,819,921 for their hand-held aluminum calculator. The gizmo is 1 3/4" thick and weighs 2 lbs., 13 oz. It can add, subtract, multiply, and divide, and it sold for between $84.95 and $119.95.
http://www.ti.com/corp/docs/company/history/calcbackg.shtmlhttp:
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Thursday, June 25, 2020
Banking on It
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