Weekly Market Commentary
All Eyes on the FOMC
Posted on March 23, 2023
|The Major Markets navigated a tumultuous week last week with mixed results. The Nasdaq was the standout performer as it added 4.41 percent followed distantly by the S&P 500 which managed to add 1.43 percent. The remaining three indices ended negative as the world once again became fixated on a banking crisis.|
The fall of Silicon Valley Bank created uncertainty and risk across the small banking sector as a loss of confidence began to quickly eat at the minds of depositors. Ahead of last week, the FDIC stepped in aggressively to backstop all account holders of the troubled bank. While the FDIC only insures the first $250,000 of deposits traditionally, the fears of this contagion spreading to other banks caused them to take extraordinary measures to quell fears.
Another bank, First Republic also made headlines as the institution flirted with the same fate as SVB. However, JP Morgan Chase, as well as other banks, have loaned $100 billion dollars to shore up the bank while the share price continued to fall.
Overseas, Credit Suisse was taken over by UBS in a deal constructed by the Swiss government to prevent another systemic event from materializing with the fall of another global banking player.
This week, all eyes will be on the FOMC for their March meeting. Given the amount of impact that rising interest rates have had on the banking sector, analysts have questioned when the Fed pivot will finally materialize and rates will drop, or at the very least, stop increasing. The CME Group anticipates a 77 percent probability of another 25-basis point increase this week. That said, the future meetings have little prospect of further rate increase beyond this threshold presently.
Meanwhile, the February Consumer Price Index results came in last week with a year over year reading of 6 percent, in line with expectations. This marks the 21st month of annual inflation results that exceeded five percent. This remains well above the two percent target threshold that the Fed has stated. Now, the Fed is left with the dilemma of raising rates further to combat inflation or further jeopardize the financial sector.
Last week, the financial sector experienced the 2nd worst weekly performance of the S&P 500 sectors, as well as the 2nd worst weekly performance for the sector since June of last year.
Treasuries saw a flight to safety as market participants saw the yield curve drop substantially. The two-year saw the largest drop as the duration fell 79 basis points week-over-week. This stimulated the bond market as most of the non-corporate bond indices closed positive. The Bloomberg Barclays Aggregate bond index added 1.43 percent, taking the index back into positive territory for the year.
The S&P 500® Index is a capitalization index of 500 stock-designed to measure performance of the broad domestic economy through changes in the aggregate market value of stock representing all major industries. https://us.spindices.com/indices/equity/sp-500
The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities. https://us.spindices.com/indices/equity/dow-jones-industrial-average
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes over 2,500 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes. https://indexes.nasdaqomx.com/Index/Overview/COMP
The MSCI World Index, which is part of The Modern Index Strategy, is a broad global equity benchmark that represents large and mid-cap equity performance across 23 developed markets countries. It covers approximately 85% of the free float-adjusted market capitalization in each country and MSCI World benchmark does not offer exposure to emerging markets.
The MSCI Emerging Markets (EM) Index is designed to represent the performance of large- and mid-cap securities in 24 Emerging Markets countries of the Americas, Europe, the Middle East, Africa and Asia. As of December 2017, it had more than 830 constituents and covered approximately 85% of the free float-adjusted market capitalization in each country. https://www.msci.com/
The S&P GSCI Crude Oil index provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market. https://us.spindices.com/indices
Companies in the S&P 500 Sector Indices are classified based on the Global Industry Classification Standard (GICS®). https://us.spindices.com/indices