Markets are in a state of panic. A small regional bank – Silicon Valley Bank – suffered a bank run this week. Over $42B was withdrawn in the space of just two days. What happened? On the surface it looks like very poor risk management – where SVB was effectively forced to sell long-term bonds which were underwater. Call it a margin call. Their interest rate risk was not adequately hedged. More details will come out in the coming days… however this sell off is taking the entire sector down with it. Is it warranted?
Macro / Economy
Actionable market insights delivered to your inbox weekly
Soft Landing Hopes
Markets have been largely range trading for 17 consecutive weeks. For example, the S&P 500 appears caught between 3800 and 4200. And I think it’s easy to explain: there are valid cases for both the bullish and bearish case. Equally however, there is also no compelling argument to suggest markets are set to explode higher or crash. This market requires patience. What’s more, you cannot afford to be too aggressive betting on either outcome.
Market Refuses to Believe the Fed
The S&P 500 is optimistic on three things (a) avoiding a recession; (b) rapidly falling inflation; and (c) two rate cuts before the end of the year. And the market could be right. However, I think it’s optimistic. What’s more, they are choosing to fight the Fed.