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Tremors in the stock market.

 

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The fail­ure of Sil­icon Val­ley Bank tore into global mar­kets yes­ter­day, with investors rip­ping up their fore­casts for fur­ther interest rate rises and dump­ing bank stocks around the world. Gov­ern­ment bond prices soared as fund man­agers bet that the US Fed­eral Reserve would leave rates unchanged to steady the fin­an­cial sys­tem. As recently as last week, mar­kets were braced for another half-per­cent­age point rise at this month’s mon­et­ary policy meet­ing. The two-year Treas­ury yield, which moves inversely to prices, had been on course for its biggest one-day fall since 1987 after slip­ping below 4 per cent.

US pres­id­ent Joe Biden sought to reas­sure Amer­ic­ans that their money was safe, vow­ing to do «whatever is needed» to pro­tect their depos­its. Investors were divided on what fur­ther action may be needed to shore up con­fid­ence in other US banks regarded as vul­ner­able to higher interest rates and flighty depos­its. Hedge fund man­ager Bill Ack­man called for the gov­ern­ment to «expli­citly guar­an­tee all depos­its now. Hours mat­ter.» But his coun­ter­part Ken Griffin, founder of Cit­adel, told the Fin­an­cial Times that the Biden admin­is­tra­tion’s move to back­stop all depos­its at SVB had been wrong-headed.

As fear spread, shares in First Repub­lic, another Cali­for­nia-based lender, dropped 77 per cent. The KBW banks index, which includes lar­ger lenders, fell 11 per cent. Con­ta­gion spread to Europe, where the Stoxx banks index fell a fur­ther 6.5 per cent. The fail­ure of SVB and clos­ure of Sig­na­ture Bank come just months after a short­lived crisis in UK gov­ern­ment bonds, under­lin­ing the risks bur­ied in the fin­an­cial sys­tem as cent­ral banks rap­idly lift bor­row­ing costs.

Investors and ana­lysts said poli­cy­makers would need to tread care­fully as they sought to lower infla­tion. Gold­man Sachs said that it no longer expec­ted any rate increase at the Fed’s meet­ing this month «in light of recent stress in the bank­ing sys­tem».
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Comments

  1. Melody14 March 2023 at 10:15

    In a way I understand these reactions. But in another way, why are we always reacting like this? Ok, a big bank is offline now, maybe for good. But why do all the other banks have to suffer even if there's no actual reason for it?

    ReplyDelete
    Replies
    1. John14 March 2023 at 11:07

      Even seasoned investors react this way when something (apparently) this big happens. It's how the market will always react. It's a time of uncertainty and a good time to make money. Just try to take advantage of it and don't go to the fear side.

      Delete
  2. Nigel14 March 2023 at 12:58

    First Republic is a good investment right now seeing as their stock is down 77%. It carries a certain level of risk but what doesn't? If you want to make money this is one of the moments to invest.

    ReplyDelete

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