Spotlight Weekly – Spotlight Weekly – Fear of bank failures
Fear of bank failures has the market spooked hard
As you probably know by now, we’ve had two bank failures this past week. In simplest terms, these banks made long-term bets on interest rates. The bankers believed that low interest rates would stay low forever.
But as the Federal Reserve began to raise interest rates – to fight inflation – those bets turned bad. But because they were long-term bets, the capital in those investments wasn’t available for customers to withdraw. That became a problem when some big-name financiers called for their followers to get their money out.
That caused both Silicon Valley Bank and later Signature Bank to fail. And that fear began to spread. In Europe, troubled bank Credit Suisse sat on the brink in a much-publicized panic.
And in the short term, it has had a dramatic impact on the markets. Investors have panicked, worried that this turn of events will kick off a recession, or worse. And as stocks fell, commodity prices declined too. Here’s what I mean:
The black line is the S&P 500, our proxy for the overall stock market. The red line is the Commodity Research Bureau’s Index, a measure of global commodity markets. And the green line is the price of crude oil. And as you can see, the S&P 500 outperformed commodities (barely) and oil (by a lot).
That performance tells us something.
Right now, investors think the economy will be weaker in the short term. Today’s market is a “blood in the streets” moment. And the advice for those days is to “buy stocks.”
I’m looking at stocks today as an opportunity to take advantage of overstated fears in the market.
I’ll keep letting you know about great investments as they develop.