Weekly Market Review March 15, 2023
The S&P 500 Index declined another 4.5% last week and is now up just 0.6% in 2023. While Jerome Powell's two-day testimony on Capitol Hill led to early-week volatility, the collapse of Silicon Valley Bank, the 16th largest bank in the U.S., put additional stress on markets and shined a spotlight on bank balance sheets. (Source: YCharts, The Wall Street Journal)
Silicon Valley Bank (SVB) primarily served tech companies in Northern California. The bank's issues began during the pandemic as tech companies were flush with venture capital funding, tripling deposits at the bank between 2019 and 2022. The bank invested a majority of these deposits in high quality Treasuries and mortgages, a standard practice in the banking industry. However, after the rapid interest rate increases in 2022, these investments on SVB's balance sheet were sitting at a meaningful loss. (Source: Netinterest.co, The Wall Street Journal)
As venture capital funding dried up and interest rates increased, tech companies in need of liquidity began to withdraw their cash deposits at SVB. The combination of cash withdrawals, along with the bank's balance sheet losses, spelled the beginning of the end for SVB. The bank sold $21 billion of bonds to cover client withdrawals, realizing a $1.8 billion loss. The bank planned to tap equity markets to cover these losses, however, the need to raise capital raised a red flag among depositors and investors alike, resulting in a "bank run" mentality. Depositors began withdrawing funds as the stock cratered more than 50% in a single day. Shortly thereafter, SVB was placed into a receivership with the Federal Deposit Insurance Corp (FDIC). (Source: Netinterest.co, The Wall Street Journal)
On Sunday, a joint announcement between the Treasury Department, the Federal Reserve, and the FDIC was issued to guarantee all deposits at SVB, designating SVB as a systemic risk to the financial system. The Treasury Department claims this is not a bailout because equity and bond holders will not be protected, only bank depositors. (Source: The Wall Street Journal)
HOME RENOVATION PROJECTS, RANKED - According to the National Association of Realtors, flooring projects are the best return on remodeling investments, with hardwood flooring refinishing and new wood flooring returning 147% and 118%, respectively, on every dollar spent. Bathrooms and kitchens are much lower, returning 65-75% for every remodeling dollar spent. (Source: National Association of Realtors)
HIDDEN COST OF MARCH MADNESS - College basketball's March madness begins this week. While the NCAA expects to generate over $1 billion in revenue from the 68-team tournament, it comes at a cost; the corporate losses from distracted workers during March Madness are estimated at $13.8 billion. (Source: WalletHub)
JOBS STILL HOT, BUT MODERATING - The U.S. added 311,000 jobs in February, cooling from January but still well above average 200,000 monthly jobs added pre-pandemic. The unemployment rate rose from 3.4% to 3.6% as more individuals sought work. Leisure and hospitality jobs are currently driving job growth. Wage growth began to slow from recent highs, a welcome sign from those looking for a cooldown in inflation (Source: The Wall Street Journal)
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