Silicon Valley Bank Crisis Averted

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In his Daily Market Notes report to investors, Louis Navellier wrote:

Crisis Averted

Silicon Valley Bank (NASDAQ:SIVB) crisis averted, Fed pause next week is on the table.

The US 2-year Treasury yield has plummeted to 4.03%, down over 100 basis points in 3 days, the most since the Black Monday of 1987. It has nothing to do with a change in inflation expectations. The US government has apparently, over the weekend decided to guarantee all deposits, of any size, at any bank. The biggest exposure decision in decades, made over the weekend.

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The uncertainty of the situation is towering, and stocks are swinging wildly. The VIX shot up above 30 then moderated to 28. The S&P was flat for the year at the lows of the morning, same for the Russell 2000. The Dow is down 4% for the year, while the NASDAQ remains up 7% YTD.

Banks Under Pressure

The broad explanation for all this mayhem is that the SVB collapse was the first example of the lag effects of such a fast increase in interest rates by the Fed. The initial concern is not knowing what this fundamental change in the banking system means for the willingness and ability of banks to extend credit funding for business growth.

Bank stocks are under major pressure. The regional bank ETF, KRE, is down 15% today, 28% in a week. Even the biggest US bank, mighty JP Morgan, the Blue Chip of American banks, is down 6.5% in a week. #2 Bank of America is down 13%, #3 Citigroup -12%, #4 Wells Fargo -14.7%.

The US dollar index has dropped from above 105.5 to below 103.5. Gold has jumped from below $1,820 to above $1,920 in a week. Bitcoin went from below $20K to above $23K. Crude oil bottomed at $72.33 before the open, but has since recovered to $75.84.

 

Fed Pause

Goldman Sachs has now predicted that the Fed will pause next week, certainly being reflected by the bond market, while last week the bet was being made between a 50bp or 25bp increase. It appears that the Fed's conviction to tamp down inflation has been hijacked by the banking crisis. While lower rates should be very positive for stocks, how it occurred is not.

We can only guess how this will play out in the days ahead. Remain cautious.

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In a survey on U.S. adults on how they are feeling about the Coronavirus pandemic right now, 68 percent of respondents thought that the peak of the pandemic is behind us, 10 percent thought that we are still currently experiencing the height of it, and 7 percent thought the worst was yet to come. Source: Statista. See the full story here.