It has been a wild seven trading days in the financial markets to say the least. Last week, Federal Reserve Chairman Jerome Powell spoke to Congress and talked hawkish in order to continue his fight against inflation, forcing the bond market to price in a 50 basis point rate hike at the end of the month FOMC meeting, which is now next week. On last Thursday, though, stress appeared in the banking system, and on Friday shares of SVB collapsed and regional bank stocks declined 20-40% across the board, causing the odds of any rate hike happening to diminish.
The IAT ETF shows you how regional bank stocks have crashed, following that Jerome Powell testimony.
On Sunday, the Treasury Department, and the Federal Reserve, then announced an emergency lending program for all US banks. If they need extra money to pay people taking money out of their accounts they could now get it easily. However, this was not just a problem happening in the US, as worries spread to European banks by Tuesday and Credit Suisse stock went into a spiral. The Swiss National Bank stepped in to provide it with more liquidity and more banking moves happened in the United States. There is zero reason to fear your bank deposits with these interventions.
The stock market rallied this Thursday, as you can see from this chart of the S&P 500.
As of Thursday’s close, the Fed Funds futures market is now pricing in a 78% chance of a 1/4 point interest rate hike next week. The next meeting after that is in May and they are showing an additional 58% chance of a final hike for this interest rate hiking cycle at that one.
Now May seems a long way out, but whether one happens then or not we are clearly now at the end of this hiking cycle.
What that means is what will matter to the markets going forward now are the reasons the Fed is ending its inflation fight – not whether or not there is a banking crisis (as that is going to quickly pass once people realize that the banks are not going to collapse).
This is not 2008.
Here is how traders and commentators are reacting on Twitter.
Always Remember🚨— Interested Observer (@ObservationDesk) March 16, 2023
Jim’s “P&L” is pushing Clicks, Ad Revenue, Subs and Narratives.
Much like H. Stern, majority of his followers or listeners— either don’t like him or want the contra.
He doesn’t care. He cares about his salary & fees 💲🤡#Charlatan #PinkyRing pic.twitter.com/5qrVWbjrmX
76% upside day. Goodnight and good luck…— Walter Deemer (@WalterDeemer) March 16, 2023
$COMPQ Back above its 200 DMA / triggering technical long term uptrend signal, which had a whipsaw this week. However we see that the trend of new highs vs new lows flipped negative and breadth wise, the % of stocks in a primary uptrend is negative @ only 39%. pic.twitter.com/bpF0ltBRDP— Victor Riesco, CMT (@Global_Trader) March 16, 2023
“From a financial stability perspective, they really killed a fly with a sledgehammer,” said Nicolas Véron, a regulation expert..” European regulators criticise US ‘incompetence’ over Silicon Valley Bank collapse https://t.co/N68iZz23Wp— Sheila Bair (@SheilaBair2013) March 16, 2023
You tend to think past financial crises resemble earthquakes. They are not one-shot events. They are like bad relationships: drama, gloom, resolution, bounce back, optimism, it’s all going to be fine, then another drama, another gloom, a huge bounce back, then…— Nassim Nicholas Taleb (@nntaleb) March 16, 2023
In our 24/7 news cycle and never pausing internet stream, this banking news will soon be forgotten. Traders now will be happy with the notion of the end of rate hikes coming, but in time they will see that lending is going to tighten up, the economy will slow a bit, and then worry about that. Gold and silver will eventually be seen as necessities to have in a portfolio, as the ultimate meaning of this week’s crisis is the end of this round of inflation fighting by the part of the Federal Reserve. That means it will come back in the future even worse than we have seen in the past 16 months. This is a slow motion secular bear market that began really when the bond market peaked out in 2021 – thanks to interest rates going to zero. That’s actually the ultimate cause of these recent banking woes too.
This is the cost of over a decade of easy money policies, but people should breath a little easier now. I talked about the markets and this situation with Jim Goddard of howestreet.com in this interview.
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