More banks could soon fail - but that could end up being good news for stocks

Good morning. I'm senior reporter Phil Rosen. 

As regional bank stocks tanked yesterday, contagion remains top of mind, and commentators are warning of more risks to the financial sector. 

But as much as banking has drawn our attention the last few days, don't forget today we're due for a new economic data point, with February's inflation data out at 8:30 a.m. EST.

Still, no matter what the Consumer Price Index clocks in at, it's possible that the failures of Signature Bank and Silicon Valley Bank already convinced Jerome Powell to take his foot off the gas.

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1. Here's our starting point for today: More banks are likely to fail — even if the events of the last few days don't mark a Lehman-style event. 

The market's telling us that confidence in many regional banks is evaporating, with shares of a handful of firms seeing dramatic drops in yesterday's session. 

On top of that, Treasury Secretary Janet Yellen and President Joe Biden have communicated that the government is prepared to let financial institutions and their shareholders go under. 

Here's what Yellen had to say:

"Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we're certainly not looking. And the reforms have been put in place means that we're not going to do that again."

Meanwhile, there's still a risk of contagion. With the government rescuing Signature and Silicon Valley Bank depositors, not all the downside has been contained, according to Wharton finance professor, Itamar Drechsler. 

"One obvious issue is that the plan treats the two banks, SVB and Signature, as a special case, in the hopes that this will not have to be done for many other banks," Drechsler told me. "But then it leaves the incentive for uninsured depositors at other banks to run."

And it's not like other banks aren't facing the same predicament that drove SVB to collapse — a higher interest rate landscape is making risk-free government bonds yield more than their debt. 

"What we understand so far is that this capital was completely mismatched from a duration perspective, as the bank invested in longer-dated treasuries and other fixed-income securities such as mortgage-backed paper," Gateway Credit investment chief Tim Gramatovich told me. 

"This continued on even though the Fed was telling everyone for the past year that rates are going up. For a $200 billion bank to have no interest rate risk controls is staggering."

But scary headlines aside, the events of the last several days may actually end up as a boon for the stock market. 

As my colleague Matthew Fox writes, easing Fed policy is just the bullish sign investors have been looking for, and it would also alleviate some of the pressure that led to this bank crisis.

With dwindling prospects for a March rate hike, US shook off contagion fears to pare most of their losses, despite pressure on banking stocks. 

Barely a week ago markets had been pricing in a half-point rate hike at this month's meeting. 

Now, what was unthinkable just days ago is getting close to table stakes.

"Based on the financial market turbulence over the weekend, and signs of a sudden intensification of risk aversion, we now believe that a 50 basis point hike is off the table for next week and that the decision point will be between a 25 basis point hike or a pause," Barclays strategists told clients Monday. 

"Although we cannot rule out the first scenario, we believe that the most likely outcome will be a pause."

How do the bank failures of the last few days impact your outlook for the market and for Fed policy? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know. 

In other news:

2. US stock futures fall early Tuesday, as investors brace for the key inflation report which could signal whether the Fed will pause rate hikes this month. Meanwhile, shares of First Republic Bank were up more than 20% in premarket, after closing down nearly 62% Monday. Here are the latest market moves.

3. Earnings on deck: Volkswagen, Guess?, and more, all reporting.

4. Goldman Sachs named the best growth stocks to buy into as SVB troubles rock the industry. With financial stocks taking their sharpest losses in years, the firm's strategists laid out the 12 names on track for strong earnings growth. See the full list.

5. Silicon Valley Bank's CEO, Greg Becker, previously asked Congress to ease regulatory oversight on the bank. In 2015, he told policymakers that SVB didn't present systemic risks. He also said in 2015 that the firm had "strong risk management practices."

6. Markets are pricing in higher odds for the Fed to pause rate hikes at this month's meeting. Just a week ago, investors and strategists widely expected the central bank to speed up its pace of rate hikes. But, as Jefferies analysts put it, "the world changed" with Silicon Valley Bank's failure. 

7. Crypto just lost three of its most important banking partners within a week. Crypto executives and digital asset experts spoke to Insider's Morgan Chittum about where the industry is headed next now that Silvergate, SVB, and Signature Bank have all tanked.

8. Real-estate investor Dan Lane has used a low-risk strategy to build up a portfolio of six properties. In his view, anyone can take this approach and become a successful owner. He explained why simply getting started in real estate makes scaling up much easier.

9. The chief investment officer of Morningstar Wealth's Americas unit said investors focused on the next recession are missing the point. She said, instead, the priority should be on certain investments that can bring profits in any economic landscape. Here are the areas she's recommending to buy into right now.

10. This chart shows how the failures of SVB and Signature compare with other major collapses. The former's $209 billion in assets at the time of its collapse makes it the second-biggest banking failure ever. Dig into the numbers.

Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com.

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.