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U.S. Stocks Fall Amidst Banking Sector Stress & Volatility 

U.S. stocks closed lower on Friday,17th March 2023, together with bond yields, capping a volatile week as concerns of stress in the banking sector may indicate a recession is looming. 

Following a relief rally in regional bank stocks, investors pulled back and selling started to creep in again. A commitment from banks to deposit USD 30 billion into regional banks prevented a potential collapse in some regional banks like First Republic. 

Despite the down day, the S&P closed 1.4% higher for the week, and the Nasdaq rallied 4.4% as investors sought cover by buying into tech instead of financial stocks. The fall in yields also helped Tech share valuations.  

Here are the closing levels on Friday, 17th March 2023:

 Last Change %Change 
Dow Jones 31,861.98. -384.57. -1.19% 
S&P 500 3,916.64.    -43.64 -1.10% 
Nasdaq Comp 11,630.51. -86.77 -0.74% 
U.S. 10Y 3.43%   
VIX    25.51 +2.52 +10.96% 

The stress seen in the banking sector following the collapse of SVB continued to be front and centre of market moves. The dramatic fall in yields, specifically 2-yr yields, suggests that the Feds may cut rates very soon. 

Some investors interpret this as the market telling the Fed to stop rate hikes and cut rates instead. 

Nomura is one bank that is calling for a cut at next week’s Fed meeting. Many others are calling for a pause while some still expect a 25-basis point hike. 

Going by what the ECB did last week, a 25-basis point hike should not come as a surprise. 

Regardless, even if we were told in advance what the Fed will do next week, we would not be able to predict what the markets will do. 

That is the reality we have seen these last few weeks. The market tends to read what it wants to and reacts the way it wants to. 

So, it may be pointless to predict next week’s moves and instead be prepared for more volatility. 

Source: CBOE, Bloomberg. 

This commentary is written by James Gomes.
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.

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