{"id":26528,"date":"2026-03-12T07:03:00","date_gmt":"2026-03-12T11:03:00","guid":{"rendered":"https:\/\/jeffclarktrader.com\/market-minute\/?p=26528"},"modified":"2026-03-11T15:31:59","modified_gmt":"2026-03-11T19:31:59","slug":"warning-signs-of-a-credit-crunch-and-falling-financial-stocks","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/warning-signs-of-a-credit-crunch-and-falling-financial-stocks\/","title":{"rendered":"Warning Signs of a Credit Crunch and Falling Financial Stocks"},"content":{"rendered":"
\n

Managing Editor’s Note:\u202f<\/strong>Today, we’re hearing from our contributing editor Mike Burnick in his weekly Thursday feature. <\/p>\n

\u202fMike has over 30 years in the investment and financial services industry – from operating as a stockbroker, trader, and research analyst, to running a mutual fund as a registered investment advisor and portfolio manager, to being Research Director for the Sovereign Society, specializing in global ETF and options investing. <\/p>\n

\u202fAnd he’s been senior analyst at TradeSmith for three years, running\u202fConstant Cash Flow, Infinite Income Loop,\u202f<\/em>and\u202fInside TradeSmith<\/em>.\u202f\u202f <\/p>\n

\u202fHere’s Mike… <\/p>\n<\/div>\n

Warning Signs of a Credit Crunch and Falling Financial Stocks<\/h2>\n

BY MIKE BURNICK, CONTRIBUTING EDITOR, MARKET MINUTE<\/em><\/strong><\/p>\n

Investors continue to rotate their money out of the big mega-cap favorites with market risks on the rise.<\/p>\n

The worst-performing sectors so far this year are the former favorites, including technology stocks (-3%), consumer discretionary stocks (-3.01%), and financial stocks (-8.5%).<\/p>\n

The problem for the “stock market” (the S&P 500), is that these three sectors alone account for more than 50% of the index weight by market cap.<\/p>\n

Meanwhile, the sectors that have performed best, including energy (+22%) and materials (8.6%), account for only 5.5% of the S&P 500 Index market cap.<\/p>\n

The result is the old favorites, but now lagging sectors, are literally “weighing on<\/em>” the entire stock market, dragging the index down.<\/p>\n

As I pointed out in my column last week<\/a>, tech, consumer and financial sectors have all slipped into our short-term Health Indicator red zone.<\/p>\n

This signals the potential for more downside ahead in these sectors and stocks. And that would be an increased drag on the market.<\/p>\n

In particular, the decline in financial stocks has really grabbed my attention.<\/p>\n

You can’t pin the blame on just “AI anxiety” or the conflict with Iran for the downfall of financials.<\/p>\n

The real worry is that credit risks are rising. That could signal a credit crunch in the making.<\/p>\n

And if that’s the case, the downside risks for stocks could be magnified.<\/p>\n\n

\"\"<\/figure>\n\n

As you can see above, credit default swap spreads just spiked to the highest level since the tariff trauma<\/em> this time last year.<\/p>\n

These are basically an insurance policy bought by big Wall Street institutions against the risk of borrowers defaulting on bonds or loans.<\/p>\n

Credit default swaps only “pay off” due to losses from a system-wide credit crisis, such as the 2008 global financial crisis.<\/p>\n

So, when credit default swaps rise in value, as they are now, it means Wall Street is getting more worried.<\/p>\n

In other words, it’s a risk-off signal. And not just in the U.S. either. Credit risk is also on the rise in European financial markets, too.<\/p>\n

It’s no wonder the CBOE Market Volatility Index (VIX), also known as the stock market’s “fear gauge” also spiked to the highest level earlier this week since “Liberation day” in April 2025.<\/p>\n\n

\"\"<\/figure>\n\n

Markets have calmed over the past few days, with VIX declining a bit. But volatility remains elevated, which is a yellow caution flag for markets.<\/p>\n

In fact, VIX just triggered a short-term Health indicator “buy” signal this week, which means more upside potential for volatility could lie ahead.<\/p>\n

In today’s turbulent markets, keep a watchful eye on the VIX. Also, keep tabs on the S&P Financial Sector ETF (XLF) in TradeSmith.<\/p>\n\n

\"\"<\/figure>\n\n

Type the symbol XLF in the Search for Ticker box, as shown above, then click on holdings to view the individual stocks that make up XLF.<\/p>\n

You’ll notice many blue-chip financial stocks including JPMorgan Chase, Bank of America, and Wells Fargo have slipped into the red zone recently. The same is true for big credit card firms Visa and American Express.<\/p>\n

This is another “risk-off” sign for the overall stock market.<\/p>\n

Bottom line:<\/strong> Unless VIX declines back below 20, and until blue-chip financial stocks can stabilize, then rally back into the Health indicator green zone, it is best to proceed with caution.<\/p>\n

Good investing,<\/p>\n

\"Signature\"<\/p>\n

Mike Burnick
\nContributing Editor, Market Minute<\/em><\/p> \n","protected":false},"excerpt":{"rendered":"

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