In preparation for this issue’s Market Recap, we thought, “Wouldn’t it be nice to write about something other than the Federal Reserve (the Fed) and interest rates?” Well, be careful what you wish for!
It’s probably a safe bet that a week ago you had never heard of Silicon Valley Bank or SVB. While SVB was a major financial institution (the 16th largest bank in the U.S.) it also had a very specialized clientele, which included startup companies, particularly in the tech industry, venture capital, private equity, and wineries.
Last week SVB became a victim of a good old-fashioned bank run and on March 10th regulators seized the bank and placed it into receivership with the Federal Deposit Insurance Corporation (FDIC.) In a rare move, the Secretary of the Treasury, Janet Yellen, Fed Chairman, Jerome Powell, and FDIC Chairman, Martin Gruenberg, issued a joint statement guaranteeing that all deposits at SVB would be fully protected and customers would have access to all of their money – including uninsured deposits – starting Monday, March 13.
While any bank failure is a cause for concern, we believe SVB is an isolated case and not a precursor for larger problems in the banking world. Their specialized clientele posed unique risks and a combination of poor risk management and a relentless social media campaign warning customers to withdraw their deposits caused the failure.
The market hates uncertainty, particularly in the financial sector, and stocks were hit both Friday (3/10) and the following Monday, with bank stocks particularly hammered. However, by Tuesday (3/14) investors became increasingly confident that other banks would not suffer the same fate as SVB and markets saw significant growth, led by the NASDAQ Composite Index (NASDAQ), which climbed over 2% for the day.
Other economic news remains the same as new reports confirm what we already know: the labor market continues to be strong as February’s jobs report, released last Friday, again surprised economists with a monthly gain of 311,000. That was lower than January’s rate of 500,000 but still strong.1 Unemployment is a very low 3.6% and 10.8 million job openings remain.2
On the inflation front, things continue to move in the right direction – but at a snail’s pace. February’s Consumer Price Index (CPI) posted the smallest annual increase since September 2021, at 6%, which matched economists’ estimates. For context, January’s increase was 6.4%. Inflation slowed to 0.4% from 0.5% last month, also in line with expectations.3
The Fed meets later this month and is again expected to increase interest rates, although expectations for the amount of the increase are rapidly changing. At the beginning of last week markets overwhelmingly expected a 0.5% rate increase. After aftermarket volatility and the collapse of SVB, expectations are now securely in the 0.25% rate increase camp. Stay tuned for the actual results.
In late-breaking news, markets opened significantly lower on Wednesday (3/15) on fears that the banking crisis might spread after all. This time the European bank, Credit Suisse, was in the crosshairs. Market volatility continued through midday and at one point the Dow was down 725 points. However, by afternoon the Swiss Central Bank stepped in to offer Credit Suisse liquidity if needed. The markets rebounded somewhat, including the NASDAQ which led the way with a very modest gain.4
Reviewing returns for the first half of March, the major markets all declined. As of March 15th, the Dow fell 782 points (2.4%), the S&P 500 lost 78 points (1.97%) and the NASDAQ dropped 21 points (0.19%).
1 www.jhinvestments.com/weekly-market-recap.com “Weekly Market Recap” March 10, 2023
2 www.am.jpmorgan.com “Weekly Market Recap” March 13, 2023
3 www.msn.com “Consumer Inflation Report Buoys Equities” March 14, 2023
4 www.msn.com “Dow closes more than 245 points lower Wednesday as bank crisis spreads to Europe” March 15, 2023
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Past performance is no guarantee of future results. No person or system can predict the market. There is no guarantee that any strategies discussed will result in a positive outcome. All investing involves risk and no investment strategy can guarantee a profit or protect against loss, including the potential loss of principal. S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. The NASDAQ is an index that tracks the cumulative results on a market capitalization basis of all stocks trading in the NASDAQ system. The Dow Jones Industrial Average is a widely watched index of 30 American stocks thought to represent the pulse of the American economy and markets. Investors cannot invest directly in an index. Diversification does not guarantee a profit or protect against a loss.