The Wrap: Bank Income Up, Stocks Sideways; Gold & Silver Lower
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This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. And please do watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing.
May 29, 2026 | As the month of May draws to a momentous close, the US-Israeli war with Iran seems no closer to a conclusion than it was a month ago, this despite the almost daily optimistic statements about “a deal” from the Trump Administration. "US and Iran 'very close' to deal but 'not there yet', VP JD Vance said this week.
The chief result of President Donald Trump’s Iranian adventure seems to be ever higher inflation and rising LT interest rates. That said, WTI trended down again this week, hitting around $89/barrel (was ~ $97/barrel last week).
Brent was down to about $94/barrel ($103 last week). Gasoline prices also fell to $4.39 vs $4.52 last week, with diesel down to $5.52 vs $5.63 last week. But technology stocks are at all-time highs led by the likes of Micron Technology (MU), which is up over 800% in the past year. Are the US equity markets approaching an inevitable reset?
Bank Income Up, Stocks Sideways
The FDIC released the aggregate Q1 data from the US banking industry this week. Income was up again, but stock prices for financials are flat to down with a few exceptions. We’ll be publishing our quarterly update on the industry and specific thoughts on financials on Monday.
One basic issue with all financials, banks or nonbanks, is that the upward move in LT interest rates has left many issuers underwater on their fixed income investments. Likewise, the preferred and debt securities issued by financials are trading at a discount. Are banks good value at these levels? We’ll tell our Premium Service subscribers next week.
With the 10-year Treasury trading at 4.45% yield as of Thursday’s close, banks and investors with large positions in low-coupon securities are facing rising unrealized losses on their securities portfolios, but rising delinquency in private credit is also a concern.
“Fueled by ultra-low interest rates, post-2008 banking regulations, and yield-hungry investors, private credit became one of the most powerful forces in global finance,” writes Mayra Rodriguez Valladares.
“Now the environment that created it has reversed: rates are elevated, refinancing has become harder, and the first real signs of stress are emerging across the asset class.”
Rodriquez notes that Fitch Ratings reports that the U.S. private credit default rate hit a record high of 6.0% in April, 10x the default rate for US banks. The credit rating agency also estimated that private-credit-backed corporate borrowers experienced a subprime 9.2% default rate in 2025.
Despite such concerns, our WGA Bank Top 50 group is currently led by The Toronto-Dominion Bank (TD), Merchants Bancorp (MBIN) and Bread Financial Holdings (BFH), not exactly a who’s who of usual leaders in the group.
TD has almost doubled in the past year largely due to its recovery from 2024 regulatory penalties (including a U.S. asset cap), combined with record revenue in Canadian retail banking. TD has done a much better job recovering from regulatory sanctions than say Wells Fargo (WFC).
The End of Policy?
Will an eventual cut in ST interest rates by the FOMC will also result in lower LT yields? Our simple answer is no unless and until the Fed restarts quantitative easing (QE). Treasury Secretary Scott Bessent heavily criticized (QE), calling the Federal Reserve an "engine of inequality,” but the lack of QE is gradually forcing LT interest rates higher as the federal debt grows. We may be closer to QE 5 that Bessent knows. To review:
QE1 (Nov 2008 – Mar 2010): Response to the global financial crisis, the Bernanke Fed purchased $1.75 trillion in mortgage-backed securities (MBS), agency debt, and Treasury notes.
QE2 (Nov 2010 – Jun 2011): Aimed at “supporting a struggling recovery,” the Bernanke Fed purchased an additional $600 billion in longer-term Treasury securities. “Operation Twist” redux c/o Governor Janet Yellen.
QE3 (Sep 2012 – Oct 2014): Open-ended asset purchasing program (nicknamed "QE-Infinity") under the Bernanke Fed that eventually peaked at $85 billion per month in combined MBS and Treasury purchases.
QE4 (Mar 2020 – Mar 2022): Initiated to counter the "economic fallout" of the COVID-19 pandemic. Open-ended program expanded the Fed’s balance sheet to a peak of nearly $9 trillion through massive purchases of Treasuries and MBS causing home prices to soar.
Notice that the US housing market was massively subsidized by the Fed going back to 2008, one reason that home prices surged until the end of 2024. In relative terms today, housing is in a depression.
There may be a short rally in LT interest rates as and when the Fed inevitably cuts the target for federal funds, but we have a hard time envisioning a catalyst for a sustained rally in Treasury notes and bonds, much less MBS.
The massive weight of duration of MBS that is being shifted from the Fed back to the private markets is pushing mortgage rates higher. More, the impact of the war with Iran may push up inflation up towards double digits by year-end, regardless of whether a deal happens sooner than later.
Higher Rates, Lower Asset Values
As a result of the war with Iran, “Trump’s poll numbers on the economy — by far the top issue this year — have collapsed,” PunchBowl reports. “Some recent polls had him under 30%, an absolute disaster for Republicans” in the midterm elections.
Consumer confidence hit record lows this week as well. Americans are cutting back on spending and consuming savings as they struggle with rising gas prices and interest rates, even as Wall Street notches record highs.
The number of Americans struggling to put food on the table is growing. But even more worrisome is the impact of rising inflation and interest rates on prices for stocks and other assets. Could the net result of two years of manic behavior by investors chasing returns in everything AI be a maxi reset in the financial markets?
A decade of artificially low interest rates – and the expectation of more of the same in the future – drives up asset prices. As low interest rates permeated the economy over the past decade and more, MTS Observer noted recently, “near-term cash flows are discounted by a lower cost of capital, leading to higher valuations across all asset classes.”
When the expectation of interest rates lower for longer evaporates, however, suddenly the rationale for elevated assets prices disappears. As interest rates rise, the true condition of bank loan portfolio is becoming evident and is tied to valuations. Or to use the language of commercial property, a higher cap rate implies a lower valuation for the asset.
Gold, Silver Trend Lower
In the past five days, gold lost several points in a week of choppy trading. Gold has trended down, falling by roughly 3% to 4% to below $4,400 per ounce. This marked multi-month lows driven by a stronger U.S. dollar, stalled U.S.–Iran peace talks, and rising Treasury yields.
Over the last five trading days, silver prices experienced a volatile pullback, sliding from roughly $76.50 per ounce down to the $72.00-$74.00 range. Prices softened reportedly due to short-term profit-taking, pushing the metal to four-week lows. ZKB Silver ETF (0VR6.L) is still the best performing stock in the WGA Precious Metals Top 25, but we’re not allowed to buy it at Merrill Lynch. Go figure.
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