OBSERVATIONS
- Both U.S. stocks and global stocks sold off last week as fears over economic and market contagion due to the collapse of Silicon Valley Bank (SVB) took center stage.
- As a result, small caps underperformed their large cap peers with the Russell 2000 Index down -8.03% for the week compared to the Russell Mid Cap Index down -6.86% and the S&P 500 Index down -4.51%
- On the other hand, bonds had a very positive week as yields contracted significantly (the 10-year yield fell from 3.9% to 3.4% within two days).
- As a result, the Bloomberg US AGG Bond index returned 1.17%, significantly outperforming equity indexes.
BY THE NUMBERS
Silicon Valley Bank (SVB): While the SVB collapse is a reminder of the unintended consequences that aggressive central bank tightening can create, it highlights the bank’s poor interest rate risk management and unique customer base. Most banks rely on a variety of sources for deposits, tend to be much more retail-oriented, and hedge their interest rate risk. SVB’s percentage of uninsured deposits (those exceeding the $250k FDIC insurance limit) was 88%. By contrast, JP Morgan holds 59%, Wells Fargo holds 37%, Bank of America holds 32%, and Citibank holds 31%.3
UBS to the Rescue: UBS came to the rescue of its long-time rival Credit Suisse yesterday. The acquisition was brokered by the Swiss government and at $3.3 billion dollars, represents a 99% decline in Credit Suisse’s price-per-share from its all-time highs. As one of the world's leading financial centers, Switzerland has a lot at stake in this rescue operation. Credit Suisse has a 167-year-old history but has lost investor confidence after numerous scandals and high-interest rates. Credit Suisse’s clients have withdrawn over $100 billion over the past three months, and experts worried the bank teetered on the brink of collapse.4
Economic uncertainty has taken a toll on consumer sentiment. The University of Michigan’s Index of Consumer Sentiment fell for the first time in four months in March, falling to 63.4 from last month’s reading of 67, according to preliminary data. 5 |
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Economic Definitions
Federal Reserve (Fed): The Federal Reserve System is the central banking system of the United States of America.
CPI (headline and core): Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.
Producer Prices - PPI (headline and core): Producer prices (output) are a measure of the change in the price of goods as they leave their place of production (i.e. prices received by domestic producers for their outputs either on the domestic or foreign market).
University of Michigan Consumer Sentiment Index: Consumer confidence tracks sentiment among households or consumers. The results are based on surveys conducted among a random sample of households. Target Audience: representative sample of US households (excluding Alaska and Hawaii). Surveys of Consumers collects data on consumer attitudes and expectations summarized in the Consumer Sentiment, in order to determine the changes in consumers' willingness to buy and to predict their subsequent discretionary expenditures. This Index is comprised of measures of attitudes toward personal finances, general business conditions, and market conditions or prices. Components of the Index of Consumer Sentiment are included in the Leading Indicator Composite Index. Unit: Index (Q1 1966=100)
Index Definitions
S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.
Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.
MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.
MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds. |
