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Heading into this week, the consensus concern among investors was the “higher for longer” narrative that had been brewing for the past month and whether the Fed would decide to hike rates by either 25 or 50 basis points at its upcoming meeting on March 22nd. Inflation numbers that were cooling in the last quarter of 2022 perked up again in January, and US employment data (data that is being impacted by falling response rates) just won’t cooperate even though we’re seeing big increases in job cut announcements (as we’ll highlight later).
Earlier in the week, markets interpreted Fed Chair Powell’s testimony before Congress as hawkish, causing odds for a 50-basis point hike to spike well above the odds for a 25-basis point hike at the March meeting. On Wednesday, we also got a stronger than expected ADP Employment reading and a stronger than expected JOLTS reading. Both beats kept the 50-basis point hike narrative going ahead of Friday’s all-important nonfarm payrolls number for February.
On Thursday as investors were digesting the weekly jobless claims figures and listening to President Biden’s proposed tax hikes in his new budget, we saw a dramatic drop in the regional bank corner of the market when a West Coast bank known for funding a large portion of Tech and VC start-up businesses – SVB Financial (SIVB) – saw its share price fall more than 50% in early trading. By the end of yesterday, SIVB had lost 66% of its value in one day. By this morning when shares were halted after falling another 60% in pre-market trading, the entire investment world had taken notice, and when later in the day the state of California and the FDIC announced that SVB had gone belly-up, the stronger-than-expected nonfarm payrolls report was but an afterthought. The failure of SVB (formerly Silicon Valley Bank) is the 2nd largest bank failure in US history, and it happened just like that. For the week, the US equity market was down 4.5%, and Treasury bond yields that were hitting cycle highs earlier in the week ended up seeing some of their biggest 2-day declines ever.
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