Published Friday, March 24, 2023 at: 7:44 PM EDT
Despite the threat of bank runs and a quarter-point interest rate hike by the Federal Reserve, the Standard & Poor’s 500 stock index closed a volatile week with a gain of 1.4%.
The Federal Reserve raised the target range of its benchmark lending rate by 0.25% on Wednesday, despite the sudden onset of bank runs that erupted two weeks ago, when a run by depositors at Silicon Valley Bank spread fears that a banking crisis could destabilize other banks and spread to other banks, destabilizing the U.S. and global economy.
Although fears about deposits at Deutsche Bank, one of Europe’s biggest lenders, sent its stock nosediving by as much as -15% on Friday, its share price loss diminished to -8.5% by the end of the day.
Wall Street’s reaction indicated the threat to banks would be contained, largely thanks to quick action by the Federal Reserve to create a special funding program, according to economist Fritz Meyer. “The Federal Reserve will be offering loans up to one year in length, and the assets against which they're making these loans will be valued at par,” according to Mr. Meyer, an independent economist. “So the Fed has provided the liquidity that any bank, might need if they get a run on their deposits.“
Some banks suddenly faced a liquidity crisis when depositors earlier this month noticed they were short on cash to pay off depositors. Social media posts accelerated their troubles and made depositors withdraw money from accounts in excess of the $250,000 limit on accounts backed by the Federal Deposit Insurance Corporation (FDIC).
A number of banks, such a Silicon Valley Bank, Signature Bank and Silvergate Bank had tied up too much of their depositor assets in long-term bonds and the aggressive rate-raising campaign, which had sent the Federal Reserve’s benchmark lending rate 600% higher in the previous 12 months, decreased the value of their long-term bond holdings. Selling them to satisfy depositor withdrawals would create a bigger financial hole. The Fed’s swift action on March 12 to create the Bank Term Funding Program prevented banks with a mismatch in their long-term holdings versus short-term liquidity needs from falling victim to the same problem.
The S&P 500 stock index closed Friday at 3970.99, up +0.56% from Thursday, and up +1.39% from a week ago. The index is up +77.48 from the March 23, 2020 bear market low and down -17.21 than its January 3, 2022. all-time high.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
The articles written in this newsletter were written by a journalist hired by Advisor Products, Inc. and provided to you by The Clark Group Asset Management. Their accuracy and completeness are not guaranteed. The Clark Group Asset Management is not a legal or tax advisor.
GET IN TOUCH
24941 Dana Point Harbor Drive
Dana Point, CA 92629
© 2023 The Clark Group Asset Management.
Why The New Bull Market Theory Was In The News This Past Week
With the Standard & Poor’s 500 stock index more than 20% higher than its bear market low on October 12, 2022, The Wall Street Journal, The New York Times, Reuters
The Clark Group’s mission is to build long-lasting relationships with our clients and help them organize, grow and protect their hard-earned assets through life’s transitions. Along the way, our goal is to provide peace of mind for our clients through trust, thoroughness and transparency. Our experience has taught us that our value comes from helping clients make sound financial decisions while minimizing the emotion that often comes with investing. We are here to guide you through both good and bad economic times.
As a fiduciary financial advisor, we have a legal obligation to always act in your best interest and disclose any conflicts that could prevent us from servicing you. Furthermore, our compensation is fee-based which allows us to be completely objective and aligns our incentives with our client’s best interests. We provide clients in the Los Angeles, Orange County, and Southern California area with investment management, retirement planning, portfolio risk assessment, and charitable giving strategies.