Market Update 03/20/23

Chris Koruth John

Markets gained between March 14 and March 20 due to investor confidence stemming from the actions of government entities and top banks.

Markets rebounded on Tuesday following a joint statement from federal entities that all depositors who did business with SVB Financial Group and Signature Bank would receive access to their funds starting March 13. By Tuesday’s close, the Dow Jones Industrial Average rose 1.1%, the S&P 500 rose 1.7% and the Nasdaq composite rose 2.1%.

The Federal Reserve is also in the process of creating a Bank Term Funding Program, which would provide additional funding to depository institutions. Investors sighed in relief as the Chicago Board Options Exchange’s Volatility Index fell from 10.5% to $23.73.

The U.S. Department of Labor announced that the consumer price index gained 0.4% month-over-month in February. The core index, which excludes energy and food items, gained 0.5% in February. Both the index and core index readings were in line with the Street’s consensus of 6.0% and 5.5% year-over-year increases, respectively.

The three major indexes closed mixed on Wednesday due to questionable investor sentiment surrounding the stability of the financial sector. The Dow fell 0.9%, the S&P 500 fell 0.7% and the Nasdaq rose 0.1%.

The energy sector, industrials sector and financials sector were the largest movers on Wednesday, plummeting 5.4%, 2.4% and 2.7%, respectively. The fear-gauging volatility index soared 10.2% to $26.14.

Investors were spooked by reports that stemmed from Credit Suisse Group AG, which revealed that depositors withdrew more than $120 billion during the fourth quarter of 2022. Confidence in the stock was restored after the Swiss National Bank announced that it would meet the liquidity requirements imposed on Credit Suisse.

Stocks closed higher on Thursday as governmental entities took confidence-instilling steps in supporting financial institutions. The Swiss National Bank extended a $54 billion covered loan facility to Credit Suisse to ensure that the bank could meet short-term liquidity obligations. The Dow rose 1.2%, the S&P 500 rose 1.8% and the Nasdaq rose 2.5%.

The U.S. Department of Labor reported that jobless claims decreased by 20,000 to 192,000 for the week ending in March 11. This value beat the Street’s consensus estimate of 206,000 jobless claims.

Markets bled on Friday as the banking crisis worsened with names like First Republic Bank and PacWest Bancorp struggling to convey confidence to investors. The markets closed with the Dow losing 1.2%, the S&P 500 losing 1.1% and the Nasdaq losing 0.7%.

The volatility index gained 11.0%, rising to a value of $25.51. Fear among investors remained high, even as larger banks attempted to rally conviction behind the financial sector via a $30 billion pledge made to First Republic.

Over the weekend, the Switzerland-based financial services company UBS Group AG agreed to purchase Credit Suisse for $3.25 billion in a frantic deal to bail out its top domestic rival. This blockbuster deal is the result of continued government intervention and will allow for UBS to retain greater market share of the Swiss banking sector.

Investors should remain vigilant as the financial sector endures volatility and uncertainty. Recession-proof sectors focused on fee-based contracts may be worth considering.