Week 11 in Brief
Wall Street experienced a hectic week, which started with the collapse of two banks, leading to fears that problems in the banking sector could spread. Despite emergency intervention by governments and major banks, investors’ worries persisted, resulting in a sharp decline in stocks at the end of the week. First Republic Bank’s shares have been falling throughout the week due to investors’ concerns that it could be the next bank to fail after Silicon Valley Bank and Signature Bank. Although the First Republic received a $30 billion deposit pledge from several financial institutions, its stock prices still dropped by over 30%, indicating that market sentiment is driving the markets rather than facts.
Meanwhile, the Swiss Central Bank offered Credit Suisse around $50 billion in emergency funding, but its shares still fell by approximately 10% on Friday. Although there is no indication of problems with First Republic or the banking sector as a whole, investors remain concerned that there may be more bank failures. As a result, global markets continue to experience volatility and uncertainty.
How did the major indices perform? On Friday:
- The Dow Jones Industrial Average fell 1.19%.
- The S&P 500 lost 1.10%.
- The Nasdaq Composite fell 0.74%.
For the week:
- The Dow Jones dropped by 0.15%,
- The S&P 500 advanced by 1.43%.
- The Nasdaq gained 4.41%.
What drove the U.S. market?
- First Republic Bank tumbles on suspending dividend
- SVB Financial Group (SIVB.O) announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank (SBNY.O), which sparked fears of contagion throughout the global banking system.
- FedEx jumps on full-year profit forecast raise
- The University of Michigan’s preliminary March reading on the overall index of consumer sentiment came in at 63.4, down from 67 in the prior month.
- The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was up 10.96% to 25.51.
- U.S.-traded shares of Credit Suisse also closed sharply lower, down 6.9%. As
- Investors now turn their gaze to the Federal Reserve’s two-day monetary policy meeting next week.
How did the European markets perform?
- An early recovery in European stocks ran out of steam as investor sentiment remained fragile after a week of turbulence following the failure of Silicon Valley Bank on March 10.
- Credit Suisse was the worst-performing stock in the Stoxx 600 index, down 9.4%. Losses were pan-European with various banks affected such as Santander, Swedbank, Commerzbank, Deutsche Bank, Barclays, and HSBC UK.
- The week saw volatility in the banking sector, with the European Central Bank hiking rates by another 50 basis points, resulting in the worst performance for the Stoxx 600 index since September 2022.
- European shares erased early gains and had their steepest weekly drop in five months, with the pan-European STOXX 600 (.STOXX) finishing down 1.3% lower. It was under pressure from banks (.SX7P), insurance (.SXIP), and financial services stocks.
How did Asian markets perform?
- Asian markets finished broadly higher on Friday with shares in Hong Kong leading the region.
- China’s Shanghai Composite is up 0.73%.
- MSCI’S broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) surged 1.6%.
- Japan’s Nikkei (.N225) climbed 1.2%.
- China’s bluechips (.CSI300) jumped 1.3%
- Hong Kong’s Hang Seng Index (.HSI) rose 1.8%.
Bonds and Commodities
- The risk-off sentiment also hit oil prices. At their session low, both benchmarks were down more than $3.
- Brent crude, the global benchmark, fell nearly by 12% in the week, its biggest weekly fall since December. U.S. futures fell 13% since Friday’s close, its biggest since last April.
- Gold hit a new record high level in the domestic and international markets mainly due to a fall in the dollar and global stock markets on the back of the crisis in the US.
- Spot gold prices rose 3.01% to $1,976.84 an ounce after touching their highest since April.
- U.S. gold futures gained 2.6% to settle at $1,973.50.
- The US Dollar Index Futures was down 0.55% at 103.52.
- The Euro was up against the Dollar by 0.59% to 1.07
- While the Dollar fell against the Yen by 1.43% to 131.80.
- The euro was up 0.5% on the day at $1.066, having gained 0.79% in a month, while the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 103.9.
- Bitcoin also rallied on safe-haven buying, hitting a nine-month high.
As the Federal Reserve prepares for its meeting next week, market analysts are expecting continued volatility in the stock market. The recent plunge in bond yields has helped boost equity markets, particularly tech and growth stocks, which have outperformed bank shares. However, the decline in yields could also indicate investors’ concerns about a possible economic slowdown, prompting the Federal Reserve to curb its aggressive rate hike strategy.
The current interest rate move is seen as a “tailwind for stocks” in the short term, but the market is uncertain about how the Federal Reserve will react to the recent developments in the fixed-income markets. Investors are assigning a 60% probability of a 25 basis point rate increase at the Fed’s March 21-22 meeting, with rate cuts expected later in the year.
While some market analysts are optimistic that the rally in tech stocks will continue, others are skeptical about stock valuations. The S&P 500 currently trades at 17.5 times forward earnings estimates compared to its historic average P/E of 15.6 times. The Nasdaq 100, which has been buoyed by strong gains in mega-cap stocks such as Microsoft Corp and Alphabet Inc, is currently trading at 27.3 times forward earnings.
The Federal Reserve’s decision next week will likely have a significant impact on the markets, and investors will be closely watching for any signs that the central bank may prioritize financial stability over inflation-fighting credibility. With the market remaining volatile, investors are advised to stay cautious and diversify their portfolios to minimize risks.