Investors feel optimistic because ‘the stock market had every chance to boom, but didn’t happen’ this week despite the bank’s collapse
For all the bank crashes, plunging bond yields, plunging oil and mining stocks, and day-to-day volatility, Adam Sarhan has put this week in the winning column.
“The stock market had every opportunity to explode, but it didn’t happen,” said Sarhan, author of the book. Psychoanalysis: How to make money, beat the market and join the smart money circle and founder of 50 Park Investments. “It’s an optimistic signal.”
Whether resilience survives largely depends on the Federal Reserve, whose attitude toward interest rates is the root cause of all the turbulence — and possibly what calms it down.
The S&P 500 is up 1.4%, and the tech-heavy index Nasdaq The 100 Index is up 5.8% for its best week since November even as the key Fed meeting looms and is expected to raise interest rates for the ninth time in a row. But after a year of complaining about the central bank’s tightening of monetary policy, investors now see further rate hikes as a sign of confidence in the economy and financial system.
“Some people think the stock market will be bad if the Fed doesn’t raise rates,” said Mimi Duff, chief executive officer of GenTrust. “In order to land the plane, there will be some turbulence.”
Even if the growing confidence crisis in the US banking system worries investors, the moves in the Cboe Volatility Index don’t necessarily suggest it. The VIX, Wall Street’s leading fear gauge, closed at 25.5 on Friday, below last year’s average. And looking at the so-called skewness of the VIX also suggests that anxiety is starting to subside.
The cost of protecting against a rise in the VIX next month has eased since March 10, when the crisis in the banking system became apparent. Implied volatility in contracts betting on a drop in the fear gauge over the next month has increased.
50 Park’s Sarhan is buying US stocks in the near term, including struggling tech and growth stocks like chip stocks and some brokerages, such as Charles Schwab Corporation. Investors have snapped up classic tech growth companies like Microsoft Corporation, Alphabet Inc. And Apple Inc. known for its stability and strong cash flow. The Russell 1000 Growth Index has gained 4.1% this week while its value comparison has fallen 1.7%, the biggest gap between the two indexes since 2001.
Even with all the turmoil in the banking sector, the market doesn’t expect the Fed to suddenly turn dovish. Trader is expectation up a quarter point next week to about 4.75% to 5%. They also expect policy rates to peak in May.
The bottom line for growth stocks is that inflation remains an obstacle, meaning the Fed will likely be pressured to keep raising rates, said Brian Frank, portfolio manager at Frank Value Fund. capacity after Wednesday’s meeting. He suggested buying discount energy stocks – often seen as a hedge against inflation – after the group fell 7% last week on plunging US oil prices.
The main focus for investors will be on Fed guidance in the coming months. Specifically, they will be looking for any changes in the latest quarterly rate projections, known as dot charts, after some officials suggested it might be a good idea to slow down if money growth wages cool. signs of employment.
Economists at Barclays Plc led by Marc Giannoni estimates that the dot chart average will show a peak in 2023 of 5.1%. That is in line with what officials expected at their December meeting.
“The market rallied at some point this week, like SVB and Credit Suisse happened only once and the banking system could accept that, but I disagree,” said Frank. “I lost a bit of sleep because of this. I still don’t believe everything is fine. I haven’t bought a bank stock since 2008.”