Weekly Market Update

Despite the Federal Reserve hiking interest rates another 25 basis points and a new bank, this time Deutsche Bank, going on contagion watch heading into the weekend, stocks closed higher for the second consecutive week.  Certainly, as more banks come under strain it becomes harder to dismiss the potential for systemic risks, but markets clearly seem to believe that the major points of failure for SVB Financial, Signature Bank, and Credit Suisse were idiosyncratic, as the S&P 500 is up over 2% since SVB Financial was closed by regulators and kick started fears of bank instability.  Heading into the weekend, investors will be closely watching for banking headlines as markets balance the economic implications of tighter lender standards at banks, with the increasing likelihood that the Fed’s tightening cycle is coming to an end.

MONEY MARKET MANIA

Money market funds are typically an overlooked asset as they are generally rather boring due to their low risk and low returns.  However, with headlines of bank runs and closures, money market funds have suddenly become very popular as depositors seek places to park the cash they pull from more at-risk banks, particularly regional banks.  Furthermore, the days of near zero returns from money market (MM) funds are a thing of the past, as the Fed’s rate hike cycle has pushed up the yields for many MM funds to over 4%.  As a result, over $300B in assets has flowed into money market funds over the last four weeks and money market fund assets now sits at a record $5.1 trillion (see chart from BofA below).  Anecdotally, we have seen this trend firsthand as a record number of clients have sought counsel on how to manage their liquidity and counterparty risk.  On that note, if anyone has any concerns or questions about their bank deposits, please let us know.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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