At TM3 Wealth, it is important that you are well informed about what is happening in the markets. Here are a few of the key topics of conversation that deserve the most attention this month. If you have any questions or would like to continue the conversation, please reach out.
SVB Rattles Markets!
Silicon Valley Bank (SVB) collapsed over a five-day period starting on March 8, 2023. The events were triggered by a run on the bank after it announced that it had sold securities at a loss and needed to raise $2.25 billion to plug the hole in its finances. SVB’s bond portfolio, heavily invested in US government bonds during the era of near-zero interest rates, suffered when the Federal Reserve hiked interest rates aggressively to tame inflation. Rising borrowing costs for tech startups, which make up a majority of SVB’s depositors, forced them to draw down on deposits held by SVB to fund their operations and growth, leading to a run on the bank. US regulators have guaranteed all SVB customers’ deposits but investors in the company’s stock and bonds will not be protected. Although there are signs of stress at other banks, notably the failure of Signature Bank, most analysts do not expect a banking crisis as US and European banks have much stronger financial buffers now than during the global financial crisis.
Investors turned to US government bonds following the collapse of SVB, causing Treasury yields to drop by around 100 basis points since last March 8, 2023, marking the largest three-day decline since October 1987. The Federal Reserve was largely expected to raise rates at its upcoming meeting, but this has been questioned following the SVB’s collapse. Futures markets expect that the Fed will not hike rates in March, due to recent stress in the financial sector. The same market is anticipating that by the end of the year, the central bank will cut 0.751 percentage points in cuts, taking the rate down to a target range of 4%-4.25%1.
Inflation in February increased by 0.4%2, reaching an annual inflation rate of 6%2, according to the Bureau of Labor Statistics. Core CPI, which excludes volatile food and energy prices, rose by 0.5%2 in February and 5.5%2 on a 12-month basis. Despite recent banking industry turmoil, the inflation rate is in line with expectations. Fed officials expect housing costs, which make up one-third of the CPI, to slow down during the year.
The bottom line: Just when we think we can see the light at the end of the tunnel, yet another round of uncertainty hits the economy and markets. The good news is inflation and jobs data continue moving in the right direction. The bad news is we still have a weak economy and heightened investor anxiety. Although equity markets have pulled back in recent days, we believe the “banking crisis” will move on from the headlines in the coming weeks. Until then, we could see some choppy days ahead.
1. CME FedWatch Tool, https://www.bls.gov/news.release/cpi.nr0.htm
2. Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
The material presented includes information and opinions provided by a party not related to Thrivent Advisor Network. It has been obtained from sources deemed reliable; but no independent verification has been made, nor is its accuracy or completeness guaranteed. The opinions expressed may not necessarily represent those of Thrivent Advisor Network or its affiliates. They are provided solely for information purposes and are not to be construed as solicitations or offers to buy or sell any products, securities, or services. They also do not include all fees or expenses that may be incurred by investing in specific products. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. You cannot invest directly in an index. The opinions expressed are subject to change as subsequent conditions vary. Thrivent Advisor Network and its affiliates accept no liability for loss or damage of any kind arising from the use of this information.
Investment advisory services offered through Thrivent Advisor Network, LLC., a registered investment adviser and a subsidiary of Thrivent. Clients will separately engage a broker-dealer or custodian to safeguard their investment advisory assets. Review the Thrivent Advisor Network ADV Disclosure Brochure and Wrap-Fee Program Brochure for a full description of services, fees, and expenses. Thrivent Advisor Network LLC advisors may also be registered representatives of a broker-dealer to offer securities products.
Advisory Persons of Thrivent provide advisory services under a “doing business as” name or may have their own legal business entities. However, advisory services are engaged exclusively through Thrivent Advisor Network, LLC, a registered investment adviser. TM3 Wealth and Thrivent Advisor Network, LLC are not affiliated companies. Information in this message is for the intended recipient[s] only. Please visit our website www.tm3wealth.com for important disclosures.
This communication may include forward looking statements. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could’” or the negative of such terms or other variations on such terms or comparable terminology. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially.
Index Benchmarks presented within this report may not reflect factors relevant for your portfolio or your unique risks, goals or investment objectives. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index.
The Michigan Consumer Sentiment Index (MCSI) is a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan.