Let’s start with the good news. The panic brought on by the failure of Silicon Valley Bank, Signature, and more recently, the shotgun wedding between UBS and Credit Suisse has not produced a financial crisis, at least not yet. The bad news is that it could be the proverbial straw that breaks the camel’s back for economies in North America and Europe. We’ve now likely reached the point that markets pivot from looking at the monthly CPI numbers to a broader set of data to determine their view of the world. Investors will be spending a lot of time in Q2 perusing data on lending, deposit flows, and credit standards for evidence that turmoil in the banking is driving tighter credit conditions, and slower growth in the economy. This then will also invite investors to look beyond inflation in forming their view on, and expectations for, monetary policy.
Read MoreThe most significant change across my favourite market charts in the past few weeks is the fact that the US 60/40 portfolio is now eking out a small positive gain on a six-month basis. Chart 01 shows that my in-house 60/40 index—using the S&P 500 and the US 10y note—is now posting six-month returns to the tune of just over 1%. This reversal from a nadir in six-month returns of almost -20% earlier this year is driven by both stocks and bonds. The S&P 500 is up a bit over 10% since mid-October, and ten-year yields are off their highs. This, in turn, invites the question of whether we’re seeing the beginning of a reversal in the decline in stocks, and rise in yields, which have haunted investors this year. I wish I knew. To get at an answer to the question, however, it’s best to separate the equity story from the bond market story, at least to begin with.
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