Were you able to keep up with everything that’s happened over the last week?
If you weren’t, don’t worry. In a year or two, you’ll be able to read all about it in a book that’s number one on the New York Times Bestseller list. And better yet, it’ll probably be riddled with insider accounts of how one of the largest bank failures in history came about.
The week seemed to begin like any other. The most interesting thing on the agenda was Fed Chair Jerome Powell’s semi-annual testimony in front of Congress – an occasion where he’d have the opportunity to adjust expectations for the upcoming FOMC meeting.
For his part, Powell lived up to the hype. In testimony before the Senate Banking Panel, he said that recent economic data would likely require a higher terminal Federal Funds Rate and could force the committee to reaccelerate the pace of interest rate hikes. Powell attempted to walk back those remarks somewhat on Wednesday when he appeared before the House, saying no decisions had been made about the upcoming FOMC meeting. But the damage was already done.
When the week began, the S&P 500 stood near 4050, 2-year Treasury yields were at 4.85%, and markets were pricing in a modest 0.25% hike at the March meeting. By the time Powell finished on Wednesday afternoon, though, stock prices were 2% below their Monday highs, that same 2-year Treasury yield was above 5% for the first time in more than 15 years, and a 50bps hike was fully baked in.
If the week had ended there, it might’ve been among the most eventful of the year. Instead, Powell’s words were a forgotten footnote just two days later.
On Wednesday evening, Silicon Valley Bank surprised investors by announcing plans to sell additional stock. They’d been forced to liquidate some holdings at a loss, and needed additional capital to fill the hole. By Friday morning, SVB was shut down and placed in FDIC receivership – the biggest bank failure since Washington Mutual in 2008.
So what the hell happened?
Continue reading “Rate Resets, Bank Failures, and an Expansion of New Lows”