For all the bank collapses, falling bond yields, the hammering of oil and mining stocks and day-in, day-out volatility, Adam Sarhan puts this week’s column in victory.
“The stock market had every chance to crater, but it didn’t,” said Sarhan, author of the book Psychological Analysis: How to Make Money, Market Growth, and Join the Smart Money Circle and founder of 50 Park Investments. “That is bullish.”
If stability remains largely in the hands of the Federal Reserve, whose attitude to interest rates is the cause of all the chaos – and may be what calms it down.
The S&P 500 Index rose 1.4% and the tech-heavy Nasdaq The 100 Index rose 5.8% for the best week since November despite a pivotal Fed meeting coming up and a ninth consecutive rate hike expected. But after a year of mourning the tightening of the central bank’s monetary policy, investors are now looking at further rate hikes as a sign of confidence in the economy and financial system.
“Some people think the equity market will take it badly if the Fed doesn’t raise rates,” said Mimi Duff, managing director of GenTrust. “To land the plane, there’s going to be chaos.”
Although an intensifying crisis of confidence in the US banking system is troubling investors, the movements in the Cboe Volatility Index don’t necessarily reflect that. The VIX, Wall Street’s main fear gauge, closed at 25.5 on Friday, below last year’s average level. And a look at the so-called skew of the VIX also shows that anxiety is beginning to subside.
The cost of protecting against gains in the VIX next month has decreased since March 10, when the crisis in the banking system became apparent. The implied volatility of contracts betting on a drop in the fear gauge next month has increased.
Close to 50 Park is the long US equities in the near term, including battered tech and growth shares like chip stocks and some brokerage firms, like Charles Schwab Corp. Investors pick up classic technology growth companies like Microsoft Corp., Alphabet Inc. and Apple Inc. which are known for their stability and strong cash flow. The Russell 1000 Growth Index jumped 4.1% this week while its equivalent fell 1.7%, the largest gap between the two since 2001.
Even with all the turmoil in the banking sector, markets don’t expect the Fed to change suddenly. The traders EXPECTATION a quarter-point hike next week to a range of 4.75% to 5%. They also expect a May policy rate hike.
Catching growth stocks is inflation remains an obstacle, which means the Fed is likely to be forced to continue hiking beyond Wednesday’s meeting, said Brian Frank, portfolio manager of the Frank Value Fund. He suggested buying beaten-down energy stocks – generally seen as a hedge against inflation – after the group shed 7% last week as US oil prices fell.
A key focus for investors is the Fed’s guidance for the coming months. In particular, they will be looking for any change in the latest quarterly rates projection, known as the dot plot, after some officials suggested it may be appropriate to slow the pace of increases if growth cools. on salary, which is it. showing signs to do.
Economists of Barclays Plc led by Marc Giannoni estimates that the median of the dot plot will show a peak in 2023 of 5.1%. This is in line with what the officials planned in their meeting in December.
“The market rallied at some points this week, the move like SVB and Credit Suisse is a one-off and the banking system may allow that, but I don’t agree,” said Frank. “I lost a little sleep over it. I’m still not convinced that everything is fine. I haven’t bought a bank stock since 2008.”