Tag: Silicon Valley Bank

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Market In a Snap! March 27th – March 31st, 2023

By: Dave Chenet, CFA, CAIA®

 CloseWeekly returnYTD return
    
S&P 5004,109.313.48%7.03%
Nasdaq Composite12,221.913.37%16.77%
Russell 2,0001,802.483.88%2.35%
Crude Oil75.676.55%-5.68%
US Treasury 10yr Yield 3.49%  

Source: YCharts, Yahoo! Finance, WSJ

Market Recap

March finished on a positive note, with the S&P 500 advancing 3.5% on the month and 6.4% above the March 10th lows.  Easing concern about the banking sector and slowing inflation gave rise to the hope that the Fed will achieve a ‘soft landing’ – bringing inflation down towards its 2% target without pushing the economy into outright recession.  Under the hood, gains in tech and communication services offset losses in financials and real estate.  Regionally, Emerging Markets outperformed developed markets and bonds finished the month higher as treasury yields fell.

On a quarterly basis, both stocks and bonds were broadly higher.  European markets were the best performer for the second consecutive quarter and have significantly outpaced US stocks over that period as easing recessionary fears, hope of peaking inflation and very low valuations, and a falling US dollar vs the Euro all supported European stocks (in US dollar terms).  

Looking ahead, we are two weeks away from the start of a pivotal earnings season.  Investors will keep a keen eye on companies’ expectations around revenue growth and the impact of higher rates on corporate profits.

What We’re Reading:

Mohammed El-Erian: What happens in the Banking Sector Won’t Stay There

Richmond Fed President Barker: The Need to Be Nimble

Federal Reserve: Senior Loan Officer Opinion Survey on Bank Lending Practices

Chart of the Week:

While the actions from the US Treasury to quell the banking turmoil of the last few weeks may have alleviated the immediate pressure on banks, the economic impact may be yet in its early stages.  Data suggests that banks are tightening lending standards, which is a leading indicator for the health of the labor market.  Should credit conditions remain tight, the likelihood of recession is materially higher.

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Market In a Snap! March 6th – March 10th, 2023

By: Dave Chenet, CFA, CAIA®

 CloseWeekly returnYTD return
    
S&P 5003,856.78-4.66%0.45%
Nasdaq Composite11,138.89-4.71%6.42%
Russell 2,0001,772.70-8.09%1.02%
Crude Oil76.50-3.61%-4.46%
US Treasury 10yr Yield3.695%  

Source: YCharts, Yahoo! Finance, WSJ

Market Recap

Markets finished the week on a negative tone, as tech-focused lender Silicon Valley Bank (SVB) was shuttered by US regulators.  SVB, the 16th largest bank in the U.S., ran into difficulties as withdrawal requests (a short-term liability to the bank) were backed by a portfolio of long-dated treasury and mortgage backed bonds (long-dated assets).  This liquidity mismatch, coupled with losses associated with the price of the bonds which had been purchased in a lower interest rate environment, prompted a failed attempt by the bank to raise additional capital.  The Federal Deposit Insurance Corporation (FDIC) will step-in to protect the insured deposits (the FDIC insures up to $250,000 SVB per depositor) and oversee the sale of remaining SVB assets to meet uninsured deposits.  SVB represents the 2nd largest US bank failure in history, behind only Washington Mutual in 2008.  The default drove significant losses across all sectors of the US market on Friday.

In contrast, economic news was positive on the margin, with Friday’s Nonfarm Payroll report showing employment rising by 311k jobs in February, higher than the 205k increase economists had expected.  The 6-month trailing average of 343k jobs/month is much higher than the estimated 100k/month additional jobs considered necessary to keep up with growth in the working-age population.  Encouragingly for those keeping a close eye on the likely path of monetary policy, wage growth slowed to a 3-month annualized pace of 3.6% from a 4.4% high.  Slowing wage growth eases upward pressure on inflation.

The broad US stock market has given back its year-to-date gains and is back to levels close to where it began the year.

What We’re Reading:

FT: SVB is not a canary in the banking coal mine

FT: China is right about US containment

Inflation in 2023: Causes, Progress and Solutions – Congressional Testimony of Mike Konczal

Chart of the Week:

One key recessionary warning (amongst many) is the persistent gap between wage growth and the rate of inflation.  The US economy is consumer-driven and consumers are continuing to see inflation eat away at their propensity to consume.  Consumer spending has been supported by the stimulus savings that consumers had put away, but the current personal savings rate and data related to credit card balances suggest that American are increasingly turning to debt to amid higher prices…at a time when higher interest rates mean increase the cost of servicing that new debt.

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.