This week started, and then ended, on a pretty firm note for the stock market.
In between, however, there was a bit of volatility as investors weighed ongoing concerns about the bank industry along with the latest policy move from the Fed.
Over the weekend, market participants learned that the Swiss National Bank brokered a UBS (UBS) acquisition of Credit Suisse (CS) for a "takeunder" price of $3.2 billion. The Federal Reserve also announced a coordinated central bank action with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank to enhance the provision of U.S. dollar liquidity while offering assurances that "the capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient."
Also, a Bloomberg report early in the week indicated the Treasury Department is looking at ways to guarantee all bank deposits, if necessary, without congressional approval. This was followed by Treasury Secretary Yellen's remark in prepared comments for the American Bankers Association that the government is prepared to intervene again "if smaller institutions suffer deposit runs that pose the risk of contagion."
Many of the recent embattled bank stocks reacted favorably and moved higher in the first half of the week as investors anxiously awaited the FOMC decision on Wednesday, which brought sharp declines at the index level that day.
Briefly, the FOMC voted unanimously to raise the target range for the fed funds rate by 25 basis points to 4.75-5.00% and the updated Summary of Economic Projections showed the Fed's median terminal rate of 5.10% unchanged from December. Stocks initially rallied on this news before taking a sharp turn lower as Fed Chair Powell gave his press conference.
The sell off was hastened by Fed Chair Powell's acknowledgment that Fed participants do not see rate cuts this year. Separately, he also acknowledged his belief that the events in the banking system do not help the possibility of a soft landing for the economy.
All together, Mr. Powell did not sound especially hawkish nor dovish in his commentary. Importantly though, he did not sound particularly confident in the outlook either and we suspect that lack of confidence played a part as well in undermining investor confidence that led to the selling during his presentation.
More central banks followed suit later in the week. The Bank of England announced a 25-bps rate hike and hinted at more increases in the future while central banks from Switzerland, Norway, Hong Kong, and Philippines also hiked their policy rates.
By the end of Friday's session, price action suggested that the market had shaken off some of the worries that drove downside moves this week. The main indices closed the session higher despite sharp declines in Europe's major indices on the news that Deutsche Bank's (DB) cost of default insurance jumped to a four-year high.
The Treasury market also exhibited volatility this week. Ultimately, the 2-yr note yield fell five basis points this week to 3.77% and the 10-yr note yield fell two basis points to 3.38%.
Only two S&P 500 sectors finished the week with declines -- real estate (-1.4%) and utilities (-1.2%) -- while the communication services (+3.4%), energy (+2.3%), and information technology (+2.0%) sectors saw the biggest gains.
· Nasdaq Composite: +1.7% for the week / +13.0% YTD
· S&P 500: +1.4% for the week / +3.4% YTD
· S&P Midcap 400: +1.3% for the week / -1.1% YTD
· Russell 2000: +0.5% for the week / -1.5% YTD
· Dow Jones Industrial Average: +1.2% for the week / -2.7% YTD