Search Mark
Home / Expert Opinion

U.S. Stocks Rally Despite Banking Sector Stress & Conflicting Economic Signal 


U.S. stocks closed higher on Friday, 24th March 2023 reversing from a 1% selloff early in the day. 

Bank stocks were the leaders as they recovered from the early selling and pulled the rest of the market up with them. 

Janet Yellen, who leads the Financial Stability Oversight Council, released a statement on Friday assuring the public that although banks are facing some stress, the overall financial system is still sound. 

Couple with the bond and swap markets calling for rate cuts as early as June, which provided further reassurance to investors, leading to a strong rally into the close. 

For the week, the major stock market indexes all booked a winning week, with the Dow Jones average gaining 1.2%, the S&P 500 rising 1.4%, and the Nasdaq Composite closing up 1.7%. 

Here are the closing levels on Friday, 24th March 2023:

 Last Change %Change 
Dow Jones 32,237.53. +132.28. +0.41% 
S&P 500 3,970.99 +22.27. +0.56% 
Nasdaq Comp11,823.96. +36.56. +0.31% 
U.S. 10Y 3.38%   
VIX 21.74 +0 +0% 

Last week, the Federal Reserve raised rates by 25 basis points, with Jerome Powell stating that they are committed to fighting inflation and that rate cuts are not in the cards this year. 

Despite this, the market rallied. 

However, the stress in the banking sector seen recently could be a result of previous rate hikes taking effect in the economy, with a lag between hikes and economic reactions. This could lead to further stress in other parts of the economy and potentially result in a recession.  

To add, the bond and swap markets are pricing in a recession, with rate cuts coming as early as June. 

The market’s reaction to these developments is somewhat puzzling. Despite the Fed’s commitment to raising rates, the market seems to be disregarding this and rallying anyway. Furthermore, if the financial system is truly stable, would it not make sense for the Fed to continue raising rates? Conversely, if the bond and swap markets are predicting a recession and rate cuts, does this not indicate that the economy is in trouble? 

It is difficult to fight irrational exuberance, as sellers have recently experienced. 

The market is making all kinds of excuses to rally, despite what is actually in front of them. 

Ultimately, it can be challenging to go against the market, even if it appears to be wrong. 

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.

Risk Disclosure
Trading in financial instruments involves high risks due to the fluctuation in the value and prices of the underlying financial instruments. Due to the adverse and unpredictable market movements, large losses exceeding the investor’s initial investment could incur within a short period of time. The past performance of a financial instrument is not an indication of its future performance. Investments in certain services should be made on margin or leverage, where relatively small movements in trading prices may have a disproportionately large impact on the client’s investment and the client should therefore be prepared to suffer significant losses when using such trading facilities.

Please make sure you read and fully understand the trading risks of the respective financial instrument before engaging in any transaction with Doo Prime’s trading platforms. You should seek independent professional advice if you do not understand any of the risks disclosed by us herein or any risk associated with the trade and investment of financial instruments. Please refer to Doo Prime’s Client Agreement and Risk Disclosure Statement to find out more.

[Disclaimer]
This information is addressed to the general public solely for information purposes and should not be taken as investment advice, recommendation, offer, or solicitation to buy or sell any financial instrument. The information displayed herein has been prepared without any reference or consideration to any particular recipient’s investment objectives or financial situation. Any references to the past performance of a financial instrument, index, or a packaged investment product shall not be taken as a reliable indicator of its future performance. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, make no representation or warranties to the information displayed and Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners and their respective employees, as well as managers, shall not be liable for any direct, indirect, special or consequential loss or damages incurred a result of any inaccuracies or incompleteness of the information provided. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, shall not be liable for any direct, indirect, special, or consequential loss or damages incurred as a result of any direct or indirect trading risks, profit, or loss arising from any individual’s or client’s investment.

Share to

Expert Opinion

S&P 500 Rally On Fed's Influence, Analysts Warn of Pullback 

S&P 500 wrapped up its most impressive weekly performance of 2024, fueled by the Fed's reiterated pledge to implement three interest rate cuts this year

2024-3-26 | Expert Opinion

Tech Sell-Off, Fed Meeting Expectations Drive Stock Volatility

The stock market ended a week of heightened volatility with declines, primarily driven by the tech sell-off. Attention now shifts to the upcoming Fed meeting

2024-3-19 | Expert Opinion

Traders Wary As Stocks Retreat Amid Mixed Jobs Report

U.S. stocks slid as concerns grew over an overextended rally. This coincided with the release of a mixed jobs report, further impacting trading sentiments.

2024-3-11 | Expert Opinion