The financial markets’ resilient performance during March was notable, especially given the banking system uncertainty. The ability of the markets to navigate nearly two weeks of headline-related risk tested the underlying resolve of the markets’ capacity to look ahead.
Also promising are the signals from the Federal Reserve (Fed) that it will wind down its campaign to quell inflation. By all indications, the Fed is edging closer to its final interest rate hike, which should help bolster both consumer and business confidence.
According to The Conference Board, consumer confidence inched slightly higher in March, reflecting a solid labor market with an unemployment rate of 3.6%, the lowest in over 50 years. The National Association of Home Builders (NAHB) confidence index continued to climb higher in March, representing the third straight month of improvement. With mortgage rates tilting lower, sales of new homes began to pick up during the month, and many industry experts commented that the housing market may be on the cusp of “bottoming out.”
On March 10, Silicon Valley Bank (SVB) became the second-largest bank failure in U.S. history. The quick response from government agencies helped restore calm to the market, particularly the Fed’s lending facility, which was designed to help banks shore up their balance sheets quickly. First Citizens Bank further helped ease investor anxiety and strengthen financial infrastructure by announcing it would purchase all of SVB’s deposits and loans. On the first trading day following the announcement, First Citizens’ share price climbed 53%, demonstrating the market’s approval of the deal and suggesting the market feels that the banking sector is reasonably safe.
The following week, Signature Bank of New York failed, and a group of 11 private U.S. banks stepped in to prop up First Republic Bank. The largest threat to global financial stability came from insolvency fears surrounding Credit Suisse, but the situation was resolved quickly with a $3.3 billion buyout by long-time rival, UBS.
Overall, patience and perseverance were rewarded as markets continued to factor in an increasingly realistic scenario of lower interest rates and a weaker U.S. dollar, which helps U.S. exporters compete in the global marketplace and soften overall financial conditions globally. We’re also bearing in mind that it’s rare for markets to suffer negative returns two years in a row, though the unwinding of the technology bubble and the financial crisis that began in 2008 witnessed successive years of negative performance.
The sound foundation of our financial system corroborates our constructive optimism of the upward and long-run trend of markets, despite headlines designed to jar nerves and test our steadfast resolution. As always, please reach out to our advisors with any questions.
Sincerely,
Your Arazon Financial Team
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