March 20: Monday Market Report

After last week’s drama surrounding SVB bank, another banking crisis loomed this past week surrounding a 144-giant, Credit Suisse. The Swiss bank has been facing turmoil and problems for a while now. Last week, UBS bought out Credit Suisse in a CHF3.3B deal, shocking employeees in a swift move that also reduces investments and shores up banking inside the company. Credit Suisse’s $17B in bonds is now considered worthless. The Swiss government will backstop losses on CHF9B in assets purchased by the bank. To support the UBS takeover of Credit Suisse, SNB or Saudia National Bank, offers $100B in liquidity to UBS. Yet another bank, First Republic, is showing major signs of distress, despite a $30B bailout, resulting in a drop in their credit rating by the S&P. Several regional banks seem unable to withstand the drops in investment portfolios and loan books. These banking crises have roiled up markets, fueling strong concerns about the health of the global financial system. This stress in the banking system is expected to create a rough end to the bear markets in the United States, according to Morgan Stanley’s Michael Wilson. Banks are expected to tighten up lending rules. The reduction in available credit offered out by banks will in turn be expected to squeeze out growth from the economy. Central banks also announce measures to improve US dollar liquidity.

Earnings estimates are expected to go down as a result. Even the Oracle of Omaha, Warren Bufffet has stepped in to give advice to President Biden upon the President’s request. Will other banks be affected? Is the Fed still going to raise interest rates? We explore these questions and more on Twitter and right here in our new weekly blog post, Monday Market Report.

Consensus around an interest rate hike of 25bp is expected, according to FedWatch. Investors are keen to hear Federal Reserve chairman Jerome Powell’s decision by March 22. At that time, the Fed will also share a Statement of Economic Projections (SEP) with forecasts for stickier inflation.

Many large employers continue to slash their workforces. Amazon has reduced yet another 9,000 staff from its AWS and Twitch services. All in all, the company has removed 18,000 workers since November.

Despite the angst surrounding the banking industry and some initial wobbling, the S&P 500, Dow Jones, Nasdaq and Russell 2000 all posted gains.

Have a great week ahead!

Data for this report has been compiled from Yahoo! Finance, WSJ, FactSet, Bloomberg, FedWatch, Financial Times, and Reuters.

March 13: Monday Market Report

The rapid collapse of SVB, a popular bank among startups, has rattled investors and startups alike. Will the Federal Reserve bail them out? Looks likely. Will it still raise interest rates to lower inflation? Will Congress raise the debt ceiling? We explore these questions and more on Twitter and right here in our new weekly blog post, Monday Market Report.

As of yesterday, the Federal Reserve, Treasury and FDIC issued a joint statement announcing that all SVB depositors will have access to their full funds by Monday (today). No losses will be borne by taxpayers. The Fed also moves to backstop uninsured deposits beyond $250k.

The SVB bailout is significant, given its repercussions to startups and preventing panic in the markets. SVB had $175B in deposits in 2022, of which 89% were uninsured.

The Fed is also making additional funding available to banks to safeguard deposits through an emergency lending facility. Financing will be available through the creation of a new Bank Term Funding Program (BTFP) that offers loans for a period of one year. Up to $25B from the Exchange Stabilization Fund will be used as a backstop. The Fed also indicated that it will be willing to address liquidity concerns that may arise.

Bloomberg said that the FDIC has encouraged buyers for SVB with an auction that started late Saturday and final bids duoe on Sunday afternoon. Among the last ditch white knights are HSBC and suitors JP Morgan and PNC.

On the international front, China’s tech startups and VC industry are rocked by the collapse of SVB, according to the South China Morning Post. China also sets a 5% growth target, which its leadership says is “no easy task” while also promising to build up its miltiary to a “great wall of steel,” according to the Financial Times.

On the employment front, the US added 311,000 jobs, defying expectations and growing slightly  in the labor force participation rate to 62.5% — the highest it's been since April 2020.

In domestic markets, the S&P 500 wiped out gained for 2023 as the KBW Bank Index extended its two-day drop to 10%. Investors brace for volatility and look for parallels in today’s market with the failure of the Continental Illinoise bank in 1984 and a tightening of the Fed. Retail investors crowded the bond market so much that the Treasury website went down. With savings rates reaching 5% on some savings accounts now, money has been flowing there backed up by FDIC insurance.

The big report coming out this week is CPI that reports on many aspects of consumer psending from gas to food, rent and car purchases. The upcoming FOMC meeting this Friday has investors closing pay attention to any interest rate hikes, with markets expecting that the interest rates will not go up given the volatility and the SVB bailout. Both Bank of America and Goldman Sachs analysts no longer see a hike in March.

Have a great week ahead!

Data for this report has been compiled from Yahoo! Finance, WSJ, FactSet, Bloomberg, Financial Times and the South China Morning Post (SCMP).

Feb 20: Monday Market Report

A Quick Look at the Economic Pulse

Note: This is the first Market Report we are putting out at Elf. We aim to deliver this weekly every Monday going forward.

Defying expectations, consumers continue to buy with retail sales jumping, despite inflation and interest rate hikes. More insights on consumer spending will be clear when Walmart $WMT and Home Depot $HD post results on Tuesday.

Retail investors pour into equities, while institutional investors remain bearish and dump $19B (over the year so far) into corporate bonds, according to the Financial Times.

Eyes are focused on the Federal Reserve’s Personal Consumption Expenditures (PCE) price index, which shows how closely how quickly prices are rising across the economy. This report comes out Friday morning. The Core PCE is expected to go up 0.4%, just a bit from from December at 0.3%. Prices in January most likely went up 0.5%, according to data compiled by Bloomberg.

Other metrics of interest include the Consumer Price Index (CPI) out last week that showed inflation picked up in January, while cooling only slightly over the year to 6.4%.

On Friday, the Dow Jones and S&P 500 were both down, while the Nasdaq was up. The road has been bumpy in terms of price stability, but strong economic data from jobs to consumer spending have kept a recession at bay.

Both Goldman Sachs and Bank of America analysts expect another rate increase, potentially in March to offset inflation by the Federal Reserve.

The stock and bond market at home will be closed today (Monday) for President's Day. Brick and mortar banks, all government agencies, public libraries and the post office are closed. Most big box retailers and grocery stores will be open.

Upcoming earnings reports this week led by Walmart, also include: Home Depot, Alibaba Keurig, Dr Pepper, Live Nation, Moderna, PG&E, and Warner Bros. Discovery.

Data for this report has been compiled from Yahoo! Finance, WSJ, FactSet, Bloomberg, and the Financial Times.