One of the three principles of technical analysis is that history does rhyme. As the current banking crisis leads to fear and soured invest sentiment, many investors ask themselves how it can be that history repeats itself. The answer is pretty easy: human beings are in charge and their decision-making is susceptible to the basic instincts of fear and greed.

Will the banks stop the equity bull market? Turning to history for a possible guide, many investors might look at the Great Financial Crisis (2007-2008), given that it is the most recent one. However, a better comparison is perhaps the savings & loan crisis of 1985–1996, which led to the demise of 32% of all institutions and cost taxpayers USD 132 billion. 

As seen on the chart, even as banks suffered massive relative underperformance and volatility, the S&P 500 managed to resume its secular bull market. In fact, the crisis extended the bull market and kept investor sentiment at bay, never turning euphoric. Thus, the current banking crisis might be more like the savings & loan crisis than like the Great Financial Crisis.

Conclusion for investors
So where do we go from here? Our rating on the S&P 500 remains bullish, as its long-term momentum is bottoming. Only a decline below 3,900 - 3,800 would signal a delay in the recovery. Furthermore, while it will take some time for the dust to settle and investor confidence to be restored, we would refrain from being overly pessimistic about large-cap banks at current levels. Fundamentally speaking, the large-cap banks’ balance sheet and capital buffers look healthy. Additionally, considerable support measures from both the central banks and the regulators help to dampen the underlying liquidity issues. From a regional perspective, we continue to prefer European over US banks, since we see lower risks for European banks than currently implied by the market.