Closing Thoughts for the Week

The collapse of Silicon Valley Bank will become the 2nd largest U.S. bank failure in history. The million dollar question now becomes is this an isolated one-off event or the canary in the coal mine? The declines we saw in most of the big bank ETFs this week are probably overdone. We’ll find out in time if this was idiosyncratic or systemic, but I don’t think the warning signs should be ignored. In the end, it looked like a textbook risk-off week.

The week was relatively light with new information to work with, but the new data we did get essentially confirmed what we already know. I still think investors are waiting to see what comes out of the Fed meeting in two weeks. The oddest behavior came from utilities. One area that we are starting to see more heightened volatility already is in the dollar.

Inflation and the Fed remain the dominant market themes. The latest data is going to keep the Fed in a firmly hawkish mood and probably makes a 50 basis point rate hike next month a distinct possibility. Justified or not, the Dot Plot could look ugly and spark another round of selling in both equities and bonds. In terms of the timing of a potential recession, I think watching the 10Y/3M Treasury spread here will be important.