Market Pulse

In focus

After a week of mixed economic data, three bank failures, and the Federal Reserve (Fed) Chair’s testimony to the Senate Banking Committee, equity markets ended the week markedly lower. Yields fluctuated wildly with the 2-year U.S. Treasury yield peaking above 5% early in the week before retracing 0.47% in only two days.

Entering the week, markets were eager to hear Fed Chair Powell testify to the Senate, hoping to glean insight into the Fed’s next move. The remarks seemed to provide some clarity and markets priced in an 80% chance of a 0.50% increase on March 22. But the hawkish momentum was brief as corporate events began to unfold mid-week, led by the collapse of the crypto-focused bank, Silvergate Capital. By Thursday and ahead of the jobs report Friday there was additional chatter that more trouble may be afoot in the banking sector as Silicon Valley Bank (SVB) saw a mass withdrawal of deposits. Before lunch on Friday the bank had been taken over by the Federal Deposit Insurance Corporation.

We expect wide market swings as investors digest the latest developments. We continue to advocate a more defensive strategy and are tilted towards fixed income with a focus on high quality bonds. We remain slightly overweight cash and maintain a U.S. and large cap bias within equities.

A look back

• Global equities ended the week in negative territory, led lower by U.S. stocks which saw a sharp sell-off as all sectors finished in the red.
• The 2-/10-year U.S. Treasury curve spread reached a four-decade low of -110 basis points (-1.10%), before quickly reversing to -89 basis points to end the week.
• The February jobs report was mixed last week with nonfarm payrolls slowing, yet meaningfully above expectations, while wage growth slowed more than expected. 

A look ahead

• Investors will continue to digest the developments in the banking sector for any potential implications on the economy, Fed policy, and markets.
• The most anticipated readouts this week are the Consumer Price Index (CPI) on Tuesday and Retail Sales on Wednesday.
• Economic releases: CPI, Producer Price Index, Retail Sales, Empire Manufacturing, Housing Starts, Industrial Production, Leading Index, U. Michigan Sentiment. 

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