Stocks Just Had Their Worst Week Of The Year

SVB sent markets into a frenzy on Friday, but the Government gets involved over the weekend

Author

Mark Roussin
March 13, 2023

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Market Talk ⏪

Stocks just had their worst week of 2023. The S&P 500 fell 4.55% on the week and the Dow Jones Industrial crossed into negative territory on the year. The Russell 2000 saw their index fall 8.07% in the last 5 trading days.

The market fell hard to close the week on the news of Silicon Valley Bank locking out depositors as a run on the back took place. For those of you unfamiliar with what happened, let me explain.

Silicon Valley Bank, or SVB, was a popular back among startups, with roughly half of all venture capital-funded startups using SVB. Companies doing business were locked out on Friday and smaller companies were fearful they may not have the capital to pay their necessary fees. Even some larger businesses like Roku noted tht SVB was their a primary bank for them, which resulted in their stock falling 3% after hours.

The bank was the 15th largest bank in the U.S by deposits and held $210 billion in assets. This was the 2nd largest banking failure in US history, and the largest bank to fail since the 2008 financial crisis.

So why did the bank fail all of a sudden you might ask. For starters, the way banks make money is they take your deposits and reinvest a portion of them trying to create more income than they pay out. Banks cannot invest or lend out all of depositors money, instead, they need to stick to a set of rules set by the Federal Reserve. If a bank has $1M in customer deposits and a reserve ratio of 10%, they are only expected to hold $100K in their accounts. The remaining $900K can be used to invest or lend out to create more value.

You can see how banks can run into issues if everyone requests their cash all at the same time.

Early in the rate hike cycle, the bank decided to invest their customers' deposits in treasury bonds, which are highly impacted by shifts in interest rates. The bank was making a bet that the Fed would hike rates at a slow pace in order to fight inflation. However, the Fed increased rates at an aggressive pace, which resulted in the bank holding $80 billion in bonds yielding 1.5% on average, however, as we now know, average treasury rates are MUCH higher.

Those loses the company was sitting on were unrealized, but downgrades came out and the bank announced a $2.25 cash raise, which resulted in a “run on the bank.” This involves depositors all requesting their cash, but the company did not have the cash available. As such, the bank had to sell its treasury positions, which results in a $1.8 billion loss.

Shares of Silicon Valley bank were halted last week and came under the control of the federal government. However, some suspicious acticity took place before all this happened. The Bank's management team sold most of their stock:• CEO sold 11% of holding• CFO sold 32% of holding• CMO sold 28% of holding

However, over the weekend the Federal Reserve and Government stepped in and ensured depositors and financial institutions would have full access to their assets within SVB and Signature Bank.

The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for any potential losses from the funding program. A senior Fed official said the Treasury program likely won’t be needed and will exist only as a safeguard.

As such, a financial crisis was averted for the time being, which has futures up by a lot at the time of my writing this. A lot more happened during the week, but the bank fail news is what dominated the headlines to close the week and over the weekend. Some big news during the week outside of the bank news was the Fed stating that “a higher terminal rate is likely,” meaning rate hikes are here to stay for longer.

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US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

When it comes to the Fear and Greed Index, how quickly things can change in a matter of days. We have gone from EXTREME GREED a few weeks ago to now sitting within an EXTREME FEAR rating. Currently, the index has a reading of 23, which is down from the prior week reading of 55.

Earnings on Deck 💰

The earnings reports are beginning to slow, with much of the S&P 500 already reported, but we still have some big names reporting this week, particularly out of the retail sector.

Dividend News 📝

Here are some notable dividend stocks going ex-dividend this week. You must own the stock PRIOR to the ex-dividend date in order to receive the next dividend payment.

MONDAY March 13th

TUESDAY March 14th

  • T. Rowe Price

  • Public Storage

  • Crown Castle

  • Merck

  • Gilead Science

WEDNESDAY March 15th

THURSDAY March 16th

  • Cincinnati Financial

Here are some notable analyst upgrade/downgrades from the previous week:

  • Goldman Sachs initiates Apple as a buy

  • UBS upgrades Emerson Electric to buy from neutral

  • Jeffries initiates Merck as a buy

  • Northcoast upgrades Costco as a buy

  • UBS initiates Phillips 66 as a buy

  • LightShed downgrades Apple to sell from neutral

  • UBS downgrades Caterpillar to sell

This Week 📆

Monday

  • No economic data

Tuesday

  • NFIB small business survey

  • CPI (February)

  • Fed Governor Michelle Bowman

Wednesday

  • Retail sales (February)

  • PPI (February)

  • Empire State manufacturing (March)

  • Business inventories (January)

  • NAHB survey (March)

  • TIC data (January)

Thursday

  • Initial jobless claims

  • Housing starts (February)

  • Import prices (February)

  • Philadelphia Fed manufacturing survey (March)

  • Business leaders survey (March)

Friday

  • Industrial production (February)

  • Consumer sentiment (March preliminary)

Other Resources 📺

If you have not done so yet, definitely check out my growing YouTube community where I publish weekly videos on Dividend Stocks I am looking at.

Here is a look at my latest video: This REIT Is The Next Realty Income

I also recently published a video discussing 3 Cheap Dividend Stocks:

Here are a few others of my latest videos:

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Have questions? You can email me directly at [email protected].

Happy Investing!

Mark

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