Investors remain on edge about the health of the financial system
Worries over the banking crisis are boosting disparate assets, with traditional safe-havens such as gold, Treasuries and money markets seeing high demand along with more speculative instruments such as tech stocks and bitcoin.
As a result, some assets that typically struggle when central banks are expected to tighten monetary policy are now holding strong: The S&P 500 tech sector is up around 2% since March 8, the day Silicon Valley Bank’s troubles became apparent, compared with a 1% decline in the broad S&P 500 index. Bitcoin, which fell 60% as rates were rising in 2022, has gained nearly 30% since March 8.
“I’m not surprised that we’re getting confusing signals because this is a very confusing moment,” said Christopher Smart, chief global strategist at Barings. “Investors are very unsure about what comes next.” “The fact that the Nasdaq has held up better tells me that there’s another shoe to drop,” said Phil Orlando, chief equity market strategist at Federated Hermes, who has been moving into defensive sectors, cash and bonds in anticipation of the S&P 500′s testing its bear market lows from October. “If earnings are going to come down by at least another 10%,” he said, “it’s hard to make the case” for an expansion in price/earnings multiples.
Of course, the decline in Treasury yields has bolstered areas of the market like tech stocks - whose recent strength has outweighed declines in banking and energy shares to help support the broader S&P 500.
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