Stocks tumbled last week as investors reconsidered their interest rate expectations after Fed Chair Powell’s Congressional testimony that rates may need to go higher. Stocks also were rattled when a west coast bank, Silicon Valley Bank (SVB), was placed into receivership on Friday following a run on deposits. President Biden has assured that all of the bank's depositors will be made whole, including those above the $250K FDIC insured amount. SVB and the small NYC bank that was shutdown are not good examples of the banking sector. These two banks were excessively concentrated in the technology and crypto currency businesses. These industries have been hit hard with the increase in interest rates. In addition to being overly concentrated in the tech sector, these banks also erroneously invested too much of their capital in long-term US Treasury securities. Long-term Treasuries have also declined in value as interest rates have risen. Better run US banks typically don't lend to a highly concentrated industry and they hedge interest rates by investing across the Treasury yield curve. Therefore, we believe the US Government's actions to backstop deposits and the strength of the well run banks in the banking sector will prevent any sort of run on the banks the market may fear.
The Dow Jones Industrial Average dropped 4.44%, while the Standard & Poor’s 500 lost 4.55%. The Nasdaq Composite index fell 4.71% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.37%.1,2,3
Rate Fears, Bank Scare
Congressional testimony on Tuesday by Fed Chair Jerome Powell that interest rates may require a higher increase faster than planned unnerved investors, dimming the hopes of any pause in rate hikes this summer. After stabilizing the following day, stocks trended lower as the financial sector came under pressure. The lower move was triggered by a specialty bank's liquidity issues, though regional and money center banks could not escape the selling.
Labor market strength in a Friday report exacerbated rate-hike anxieties, though cooling wage gains balanced an above-consensus new jobs number. Markets appeared to take the employment report in stride but fell on worries arising from the shutdown of a tech-centric bank.4
Powell’s Congressional Testimony
Fed Chair Powell last week testified on Capitol Hill during which he acknowledged that the economy was running hotter than he had expected. He said that labor market strength and stubbornly elevated inflation may require the Fed to raise rates quicker than anticipated and above levels previously contemplated.
The market did not respond well to Powell’s change of tone. Many now see the potential of a 0.50% rate hike coming out of the Federal Open Market Committee’s (FOMC) March 21-22 meeting instead of the expected increase of 0.25%. Powell did say that the FOMC would consider the monthly employment report released last Friday and upcoming inflation reports before arriving at a decision.
This Week: Key Economic Data
Tuesday: Consumer Price Index (CPI).
Wednesday: Producer Price Index (PPI). Retail Sales.
Thursday: Jobless Claims. Housing Starts.
Friday: Industrial Production. Consumer Sentiment. Index of Leading Economic Indicators.
Source: Econoday, March 10, 2023
This Week: Companies Reporting Earnings
Wednesday: Adobe, Inc. (ADBE), Lennar Corporation (LEN).
Thursday: FedEx Corporation (FDX), Dollar General Corporation (DG).
Source: Zacks, March 10, 2023
"He who is not courageous enough to take risks will accomplish nothing in life."
– Muhammad Ali
Be Vigilant & Protect Yourself From Texting Scams
Unfortunately, instances of IRS-themed text scams are on the rise, and these scam attempts could put your sensitive tax data at risk. Most of these scam messages look like they’re coming from the IRS and have fake messages to lure you into providing information for things like COVID relief or tax credits. They may also ask for your information to help you set up an IRS account online.
Be aware of these scams to protect yourself and your data. Remember, the IRS does not send emails or texts asking for personal or financial information. If you receive a text like this, report it to the IRS by emailing email@example.com.
Tip adapted from IRS.gov5
This Virtual Experience Lets You Take a Vacation Without Leaving Home
You can do many things with Google Arts & Culture, including exploring lands near and far without even leaving your house.
The platform is constantly growing, but some of the most popular things you can do include hiking Machu Picchu, taking a virtual tour of the Louvre, traveling through time, or seeing hundreds of photos from almost any location worldwide. Learn more about famous works of art and experience them with augmented reality. Art Projector even lets you see how artworks look in actual size right before you. See what the Mona Lisa looks like in your living room!
The experience works on your computer, but you can also download the app to experience Google Arts & Culture on the move.
Tip adapted from Google Arts & Culture6
You need to park a car for the weekend. You find a parking space marked “2-Hour Parking M-F, 8am-6pm” with no other restrictions. You call the city and find that overnight parking is allowed on this block. So, what is the maximum amount of time you can leave your car in this space without getting a ticket?
Last week’s riddle: We know that a seahorse isn’t a horse, and we know that a silverfish isn’t a fish. For that matter, a snakehead isn’t a snake – but what is it? Answer: A predatory fish found in both Asia and Africa.
Bornean Orangutans, Lamandau Nature Reserve, Borneo, Indonesia
Footnotes and Sources
2. The Wall Street Journal, March 10, 2023
3. The Wall Street Journal, March 10, 2023
4. The Wall Street Journal, March 10, 2023
5. IRS.gov, October 11, 2022
6. Google Arts & Culture, November 20, 2022
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