Silicon Valley Bank Collapse and the Implications

Last Edited by: LPL Research

Last Updated: March 14, 2023

market signals podcast graphic

Subscribe to the Market Signals podcast series on iTunesGoogle Podcasts, or Spotify and find us on the LPL Research YouTube channel.

00:00:00:18 - 00:00:14:02


Hello everyone, and welcome to the latest LPL Market Signals podcast. Jeff Buchbinder here, your host today. Pleased to be joined by my friend and colleague, Adam Turnquist. Adam, how are you today?

00:00:14:11 - 00:00:18:23


I'm doing pretty good for a Monday. So all is well over in Milwaukee.

00:00:19:13 - 00:00:44:18


Excellent. Well, we got Milwaukee and Boston covered. I can tell you that I'm doing great because I'm not doing what I did this weekend, which was clean out the basement and start my taxes. Oh, so, yeah. Okay. Well, cleaning out the basement for a good reason. Because I'm going to renovate the basement. So there is light at the end of that tunnel.

00:00:44:18 - 00:01:03:17


But getting everything out of there has it has been less than fine, I will say. But, you know. So. Yeah. So happy to be here. Here's our agenda for this week. We're going to talk about, of course, what happened in the markets last week. It's Monday, March 6, 2023, as we're recording this at the end of the day.

00:01:04:16 - 00:01:28:11


Some of the key takeaways you see here, you know, cyclicals continue to dominate defensives. The 10-year yield hit four, came back a little bit off of that, but hit 4% last week as the market continues to price Federal Reserve rate hike expectations in and then we saw some big movers in retail and in tech on earnings. Salesforce was one.

00:01:28:15 - 00:01:55:15


Macy's was another. Broadcom. So you're seeing I think what that means is that active managers have an opportunity to find some good individual stocks. Right. You're seeing some dispersion. And if you find a winner, you're being rewarded. So I thought that was kind of an interesting observation for last week. And then to finish off the agenda, the LPL Research team did lower its S&P 500 target for 2023.

00:01:55:15 - 00:02:16:09


We'll talk a little about that. Our Weekly Market Commentary this week is trying to find a better analogy than a soft landing. So we'll leave you in suspense a little bit for just a moment while we tee that one up. And then, of course, we'll preview the week as we always do. So let's first take a look at the market returns for last week.

00:02:16:09 - 00:02:46:18


We've got, yeah, well, this isn't green and red, but if it was, we'd have a lot of green left because pretty much everything worked last week. We had about 2% gain in the S&P 500 Adam and we had gains really across the globe. I guess Brazil is one exception. I think, you know, if I were to come up with one observation, it's that the market is actually resilient in the face of interest rate sensitivity.

00:02:46:18 - 00:03:04:11


Right. Because we just talked about the market's pricing in more Fed rate hikes. Market is pricing in a little bit more of a gradual decline in inflation. And yet, you know, we're up 6% for the year and had a really good week last week. Yeah.

00:03:04:11 - 00:03:25:07


I think resiliency is really the key theme, especially as you mentioned, what the market had to absorb over the last week or several weeks really, you know, just looking at some of the three month or six month stats, you know, we're still higher when you think about where the expectations were, say, six months ago, where the Fed was going, you know, we were looking at potential,

00:03:25:07 - 00:03:37:14


not wem but the market, is looking at potential rate cuts, you know, a 460 terminal rate. All that's changed, obviously now. So definitely I think resilience is the key word there.

00:03:38:20 - 00:04:03:09


Yeah, well, hopefully it lasts, but we'll see. I think, you know the sector mix, the cyclicals outpacing the defensive this year is sending a positive economic signal. Now of course, the market could change its mind at any time. But, you know, you saw last week leadership for materials, right? We saw some big moves in commodities, which we'll show you on the next slide.

00:04:03:09 - 00:04:27:23


We saw industrials do quite well, considered perhaps the most cyclical of all sectors. We had a pretty good week for tech. You know, list goes on and on. Right. And then the defensives on the other side of the coin continue to struggle. That's utilities in particular. That's consumer staples as well as health care. So, you know, Adam, how long do you think that's going to last?

00:04:27:23 - 00:04:36:04


Is this just kind of a, you know, short term rotation, or do you think something here is telling us that the cyclicals have staying power?

00:04:36:17 - 00:04:58:09


I think staying power, it's probably going to be more durable than most people expect. So when we look at the technical trends here, you know, we'll look at a ratio chart of equal weight, consumer discretionary versus equal weight consumer staples and throughout the last half of 2022 is really just stuck in this consolidation range, looked like a bottom.

00:04:58:17 - 00:05:23:10


And then we had this decisive breakout to the upside, meaning that, you know, the equal weight consumer discretionary was outperforming. When we view that on the technical side, that's your switch back to risk on or as we call it, offense taking the field. And that trend looks sustainable right now. I don't think the pace that we witnessed in January of consumer discretionary, for example, outperforming is sustainable.

00:05:23:15 - 00:05:47:02


But I think the trend overall favors that offensive tilts. And when you look at sector breadth and what's going on underneath the surface within the S&P 500, it's really the participation has been broad based in all of those cyclical sectors, meaning they have more stocks that are above their 200-day moving average, more stocks in uptrends versus utilities or real estate.

00:05:47:02 - 00:05:53:00


They're actually putting up the weakest breadth. So they're really are not participating in the rally that we've seen this year.

00:05:53:18 - 00:06:20:17


But yeah, that's going to be really interesting to watch. If these sectors continue to do well and do send an accurate signal of future economic activity. Right. The market seems to be saying that perhaps a soft landing, as most call it, is possible. So let's turn to the fixed income and commodity markets. Just real briefly, I think what's interesting here, I mean, first, bonds hung in right?

00:06:20:17 - 00:06:51:08


Even though we had a little bit of a rate move. And then the other thing I think worth noting, I mean, look at the bounce in energy. We finally got a little bit of a rally in oil. We certainly natural gas prices, which have just been absolutely clobbered, are starting to really come back. I mean, it's not necessarily something we're rooting for, but as investors in the energy sector and as the energy sector is a signal of global demand, I think you could argue that's positive.

00:06:51:13 - 00:07:00:07


And then precious metals, precious and industrial metals really strong last week. But what do you think, Adam? Anything here worth emphasizing?

00:07:00:15 - 00:07:22:07


Yeah, definitely. When you look at energy, I think a lot of people are looking at when the bottom is coming for natural gas. That's, you know, some people call it the widowmaker market with nat gas. Just given the volatility, I think that, you know, if that description holds, especially after the last six months with the breakdown we've seen in futures, they got clobbered again today,

00:07:22:07 - 00:07:41:02


actually. I didn't see where they closed. But, you know, volatility is there to stay, I think, in nat gas. But we're really looking at crude oil as well. And a lot of people are looking for a potential bottom there. I think it's early innings on the technical side, you know, we're starting to see higher lows develop with WTI crude oil.

00:07:41:20 - 00:08:09:08


Clearly, some of the supply dynamics or supply and demand dynamics support a potential bottom. Just haven't had that conformational signal yet for a breakout. But certainly crude oil's holding up relatively well. So something we're definitely watching closely. And then when you look at what's going on in the metals complex, industrial metals are doing quite well and some of the stocks that, you know, are mining those industrial metals are actually doing really well.

00:08:09:08 - 00:08:29:01


You know, copper obviously stands out here, that's pulled back right to this key area of support. But really it's, you know, the copper trade right now and the copper trend is higher. And the takeaways there as a leading economic indicator certainly suggests that, you know, maybe the economy is doing better than some of the headlines at least suggest.

00:08:29:01 - 00:08:45:06


Oh, and those headlines certainly don't inspire too much confidence. There's a lot of bearishness out there. So let's look at the S&P 500 here. I think, you know, Adam, you and many others have pointed out the defense of the 200-day. That's really important.

00:08:46:01 - 00:09:17:13


Yeah, absolutely. I think everyone's watching that level closely, especially last week. We had a big retest of that 200-day moving average that was at 3,940. And it was pretty remarkable because on Thursday started off weak. We basically traded right down to that 200-day moving average and then buying pressure stepped up. So the bulls managed to hold the line at that 200-day and we actually had a pretty bullish price pattern on a candlestick develop on Thursday.

00:09:17:13 - 00:09:38:04


And what you look for on those is follow through buying, which is exactly what we witnessed on Friday, another big move on Friday. So it does speak to, you know, bulls stepping up to defend that key area of support. Looks like we possibly have here another higher low. It does, you know, add to the evidence of this developing uptrend with the S&P 500.

00:09:38:12 - 00:09:52:17


So we'll see how this plays out for the rest of the week. Obviously, still a lot of risk to this recovery, but on the technical side, certainly suggests that, you know, I think the October lows were likely set for this bear market.

00:09:54:06 - 00:10:06:05


And still a lot of people looking for a retest of October lows that certainly we have a long way to go to get there. I mean, my amateur technical eye tells me that we're not going to go down there. Right.

00:10:06:09 - 00:10:06:22



00:10:06:22 - 00:10:30:18


And a series of higher lows and potentially higher highs at least over the last six months. I mean,   that's a meaningful amount of time to hold on. I mean, you can have retest later. But clearly, again, as we just talked about, the market is sending a pretty positive economic signal here. Market can be wrong, but it's voicing its view pretty loudly here.

00:10:31:03 - 00:11:05:14


Yeah, absolutely. And we look at the weight of the evidence in the technical world and, you know, when you look at the checklist, you know, for a market bottom, there's a pretty long list of evidence that would suggest that those lows were set in October. By no means is that a guarantee. But when you look at just at a high level overall market breadth being cyclical, what you're seeing with, you know, the S&P now back above its 50-day and the 200-day is actually rising, not by much, and you might not be able to see it in this chart, but it's actually starting to slope higher.

00:11:05:14 - 00:11:19:10


And you look at what's happening even in with within the interest rate environment, the dollar, kind of those macro field conditions, you know, we're a bit higher on the dollar and yields. But overall, I think it's a pretty constructive backdrop for equity markets.

00:11:21:00 - 00:11:57:04


Yeah, we can just hang in there until the macro picture gets better. Then, you know, every day the odds of a retest fall. So, you know, that was kind of an optimistic take. You know, the fact that we took our target down clearly is not optimistic right now, reducing our S&P 500 target. But if we put some context around that, I mean, first and some of you may have seen this, we announced this in the Global Portfolio Strategy report that we put out every month, our snapshot of our asset allocation views.

00:11:57:20 - 00:12:19:19


And we just took it down 100 points. And it's a very simple reason why. We just factored in slightly higher interest rates, right. When we set this target we thought the Fed would maybe hike rates a couple of times this year and be done. Well, clearly that's not going to happen. Got probably a few more to go or at least a couple more to go.

00:12:20:14 - 00:12:51:13


And we you know, we still have a 10-year yield range of 3.25 to 3.75, but we're already at four and it's early March. Right. So we still think we'll get there. It's just going to take a little bit of time for the market to price in lower inflation and start to bring rates down. So this is really just a valuation call recognizing that it's probably going to take a little bit longer to, you know, to price in kind of a victory in the inflation battle.

00:12:51:23 - 00:13:21:18


So that's really all there. I don't want to talk too much about GDP growth forecasts without Dr. Jeffrey Roach with us, but it is going to be kind of a close call between let's call it muddle through soft landing or mild recession, maybe mild short lived, shallow recession. So let's move on and we'll actually let real quick before we move on, Adam, so you've highlighted 4,300 as a key technical level.

00:13:21:18 - 00:13:31:08


So that's another reason why I think it makes sense to shoot for 4,300 rather than maybe 4,400 plus at this point. Is that fair?

00:13:31:08 - 00:13:54:07


Yeah, that's going to be a tough level for the S&P 500 to get through, especially given some of the some of the interest rate environment inflation. You know, I think that level goes back to the August highs. There's a key retracement level at 4,300. And again, I think just on the fundamental side, making the case for anything above that is going to be challenging on the earnings side as well.

00:13:54:07 - 00:13:55:20


From a valuation standpoint.

00:13:57:02 - 00:14:21:11


Yeah, earnings season really didn't surprise us too much, but you know, at this point we have a little bit more downside risk maybe than we thought we'd have at the start of the year. So that is certainly worth noting as well. So this week's Weekly Market Commentary authored by Jeffrey Roach, is about offering a different analogy to the soft landing, hard landing thing.

00:14:21:16 - 00:14:48:14


I just did it myself. I just used that phrase. I'm glad Jeff's not listening. So, you know, a soft landing. Hard landing is about stopping, right? And so just making the point that you don't really stop, the economy just needs to get to steady state. And that's really about hitting its stride. So he's I don't know, I guess he's got a campaign going on to try to get people away from the landing

00:14:48:14 - 00:15:15:22


the plane analogy, trying for running. So the first point that he makes the piece is that we actually did achieve something like hitting the economy's stride, right, in the mid-nineties when, you know, Greenspan hiked rates to slow inflation and we actually avoided recession, eventually had it after the tech bubble burst, but avoided the recession in the mid-nineties.

00:15:16:07 - 00:15:44:13


So it's difficult. We know the Fed's track record is not good, but it is certainly possible that they're able to thread this needle again. Another point he makes in the piece is how spending, you know, we have this mix of services spending and goods spending and of course during the pandemic that went all haywire because we all just stocked up on goods and a lot of services businesses were closed.

00:15:45:16 - 00:16:07:00


Right. Makes sense. So now we're going back to normal because the economy's reopened. But look what's happened. The share of services is still way below its pre-pandemic trend. So the point Jeff makes is that we have potentially hundreds of billions of dollars of additional services spending that can boost the economy.

00:16:07:00 - 00:16:28:14


Yeah, certainly a surprising chart when he showed this, when I was looking at his commentary, I was a bit shocked that we weren't even back to normal on services, just given what we've seen in terms of the reopening of the U.S. economy. So I don't know. Did you have a lot of goods stashed away in the basement from when you're cleaning out the basement?

00:16:28:14 - 00:16:34:01


I guess maybe this is just, you know, getting rid of the exercise bike, that is collecting dust.

00:16:34:16 - 00:16:56:11


Yeah, well, what is that you're talking about? So I had a ton of goods, and so we're like any of you, where we loaded up on stuff, you know, just in case we had to be, you know, stuck at home longer than we anticipated. So, you know, there's paper towels and wipes and Purell and all that junk that we had to move.

00:16:56:11 - 00:17:18:07


And so, you know, that's this big boost, right, to goods. What did it go from, you know, 63 to 68% of the economy, something like that. And that's a lot of dollars to move. Right. So and then services, of course, came down. So there's a few percentage points of that services component to get back, still. Maybe some of it will be permanently lost.

00:17:19:04 - 00:17:44:09


But this is the point here, is that there's some upside to the economy. Now, the downside of this is that this could create more services inflation and it is services inflation that we're trying to contain now. The goods inflation battle is pretty much over, right? We've already seen, you know, you saw it in used car prices and things like that, the sort of poster children for the inflation problem on the goods side.

00:17:45:06 - 00:18:06:17


But services, we still have a ways to go. Rents are in there, right. We're going to have some in a few months longer I think where it's going to be tough to get services inflation down. But by the end of the year, we think we'll have some clear progress there. So that's that. Another positive aspect, I think, to the inflation battle right now, is it?

00:18:07:16 - 00:18:35:13


And again, Jeff, post this out in the Weekly Commentary on single-family construction, no surprise has come down because interest rates have risen. But multi-family construction, right, building apartment buildings has actually risen quite a bit. This is almost a 20% increase in six months. So what does that mean? It means apartment rents could come down because we'll have more supply of apartments.

00:18:35:13 - 00:19:09:13


Right. Basically supply demand balance there. So, you know, this is going to take some time, but eventually we would expect less pressure on rents from more multi-family construction. So let's wrap it up there on that piece and then tie this into the markets here, Adam, what you've done, you have taken a look at homebuilder sentiment and homebuilder stocks, and I think you've actually got some really interesting charts here to walk through.

00:19:09:13 - 00:19:12:18


So I'll start over you and let you take us through this.

00:19:12:18 - 00:19:45:19


Yeah. So we'll start with the National Association of Homebuilders Index or Housing Market Index on the top panel here. This is just a survey that goes out among single-family homebuilders, basically getting their assessment on their outlook for the housing sector. And you can see here on the top panel, we recently hit the lowest level since the pandemic in terms of overall builder sentiment, which might sound a little crazy considering where things were at. I mean you couldn't even leave your own house, let alone go look at a new house back in the pandemic.

00:19:46:00 - 00:20:12:09


And we were back at that type of bearish sentiment among builders. It was actually, the index at the high level was down for 12 straight months in 2022. Finally broke that losing streak. So in January, it was positive. And again in February we started to see some improvements within the homebuilder sentiment. On the bottom panel just looks at the various components.

00:20:12:09 - 00:20:49:18


There's three different surveys that they take. All three of them are actually higher. Looks like a potential bottom in sentiment. Clearly, mortgage rates were lower at the last February data points. We'll get an update on this on March 15. So we'll see how higher mortgage rates play into the next reading. But, you know, when you think about the housing market and the economy and stocks generally, you know, when housing bottoms, stocks bottom, we actually looked at some of the data around that just looking at this NHAB Index to go to the next slide.

00:20:50:13 - 00:21:19:20


And this comes with a big asterisk in terms of the data, because we're using, one, the benefit of hindsight to take out these housing market bottoms and then, two, it's a pretty limited data set. But nonetheless, when you actually look at all of the bottoms in that NHAB survey index, you can see here where those lows were and if there was a recession, actually four out of the five included a recession or had overlap of the recession.

00:21:20:03 - 00:21:49:15


What I found interesting, going back to the soft landing analogy comparison that we looked at, we did have a HMI or a NAHB bottom back in 1995 without a recession. That was during that soft landing era that you were talking about earlier, Jeff. What we haven't seen is a bottom in building permits yet. So something to watch for in terms of the economic data.

00:21:49:22 - 00:22:18:03


But when you do see a bottom in the HMI you can see here, forward returns for the S&P 500 just over the next 12 months, the average is 21% with, you know, four out of the five periods being higher. There was an early signal back in 2001 that was the only negative return across those time frames. And then when you look at the actual homebuilders coming off those bottoms, you can see the returns are pretty impressive

00:22:18:03 - 00:22:42:05


across the board. The average is, you know, just over 50%. Again, limited data set. But it does suggest, you know, it does kind of validate what we're seeing in some of the homebuilder stocks. Certainly having a pretty good run since last year, really since last summer, they've been outperforming the broader market. So pretty constructive if we do get, you know, a bottom in homebuilder sentiment.

00:22:42:05 - 00:23:08:00


So it's a little too early to make that call. And I'll let Jeffrey Roach make that call as well, given he's the chief economist. But certainly something we're looking at. What I'm really looking at is the homebuilder stocks. And this one's been pretty surprising when you think about where mortgage rates have gone over the last year. You know, we hit a peak in mortgage rates back in November and the housing data has been just pretty dismal over the last 12 months.

00:23:08:20 - 00:23:35:05


And you can see housing stocks or homebuilder stocks really haven't reflected the economic data. So here you can see the Dow Jones Select Homebuilders Index pretty much been trending higher since last fall, had a recent pullback right to this 50-day moving average as I think mortgage rates, you know, they've climbed higher for the last four weeks so and prices were a little bit overbought.

00:23:35:12 - 00:24:02:00


So some cooling in that. But nonetheless, the trend is higher here for homebuilders. And on the bottom panel, which is really interesting, is that relative outperformance over the S&P 500, you know, this homebuilders index has basically been putting up higher lows against the S&P 500 since right around April and May, which is pretty amazing, just given what the economic data has said about housing.

00:24:02:00 - 00:24:27:02


I think if you were to take all of the housing data and look at it and then say, okay, where are homebuilder stocks, I don't think you would say they're outperforming. I don't know. So that's where we're at it. I think it's a pretty interesting case here for homebuilders. Clearly, as a technician, we think price leads fundamentals. And I think this could be a pretty good case of that right now within the housing market.

00:24:27:02 - 00:24:55:10


Yes. So you and I have been in this business a while, me longer than you, but it seems like every cycle, homebuilders price in the worst economic scenario first, before, you know, pretty much any other group, they come out of that earlier than pretty much any other group, which is interesting because it takes a long time to find land to buy a home, which suggests maybe it shouldn't be such a, well maybe those are connected.

00:24:55:10 - 00:25:08:13


Right. Because they're kind of stuck with the costs that they have. And, you know, the market can just quickly price in the lost revenue and find the bottom more quickly than other groups.

00:25:09:09 - 00:25:34:15


Yeah, certainly. And I think just given what happened in 2008, 2009 with housing, this is probably one of the first spots investors were selling when we're talking about higher rates. Just given maybe the recency bias for anyone that was invested in housing stocks back then. So, you know, depending on the stock, I think a lot of these were down at the aggregate level, caught on average around 45% in terms of their drawdown last year.

00:25:34:21 - 00:25:53:11


And it was a pretty quick drawdown. You can see from January to June. Certainly more severe punishment for these stocks last year. And now we're starting to climb out of that. You know, we're almost half or a little over half way back to those old highs. But, you know, the relative performance has really been picking up here.

00:25:54:05 - 00:26:12:04


Yeah. And you have this secular tailwind of needing more homes. Yeah. That market just can get comfortable with the long term outlook quicker. I think with these stocks than maybe I know some hard line retailer or some big industrial. So I think maybe that's part of it too.

00:26:12:15 - 00:26:13:13


Yeah, absolutely.

00:26:13:22 - 00:26:41:02


Interesting. All right. Well, thanks for that. Let's look at the week ahead of economic data here. And there's some biggies, right? Actually, one of the biggies isn't even on here, which is or is on the calendar. Powell’s testimony in front of Congress Tuesday, Wednesday, the Senate first, the House second. We can start with that. You know, it's very unlikely that Powell breaks new ground.

00:26:41:02 - 00:27:04:07


I think you're going to hear and this is pretty much always the way this testimony works, pretty much just reiterates what he's already told the markets. And it ends up being, you know, political theater, grandstanding and really not much changes. So we wouldn't maybe that's not the biggest wildcard for markets this week because you're not going to get surprised.

00:27:04:07 - 00:27:31:21


The most likely the biggest wild card for the markets is the payrolls report on Friday, consensus 215 from Bloomberg. There's probably a little bit of upside risk. You probably have a battle between the people who think the weather drove January strength versus those who don't because January was unseasonably warm, that 517 was so far above what anybody thought that we would get, it really,

00:27:32:19 - 00:27:51:00


I mean, it was a shocker. So I think what you've probably seen, either that number will be revised or will maybe some jobs were pulled from February into January. So we would look for something in the twos range or maybe even a little bit lower. We're not going to get another blowout here. What do you think?

00:27:51:00 - 00:28:09:17


And yeah, I would agree with that. I don't think, you know, we're going to see another massive blowout in terms of exceeding all estimates. I thought my Bloomberg was broke when I saw that number last time. All right, trying to hit refresh because someone, you know, fat fingered a digit because no one saw that coming.

00:28:09:17 - 00:28:21:14


I don't think we'll see it again. I think the revisions will really be interesting. And you know what? We'll see what some of the average hourly earnings and how that how that looks on Friday as well.

00:28:22:08 - 00:28:52:12


Sure. I mean, nobody wants anybody to lose their job, but the market's trading on wages, which is where, you know, Powell is going to take cues. And right now, you know, we still have too tight of a labor market. The JOLTS, job openings report. I mean, that matters too, it's a one month lag. But right now, I think the job openings to unemployed ratio is pretty much at post-pandemic highs.

00:28:52:12 - 00:29:16:15


It's like 1.9, I believe the high was two. So we got to get that number down a little bit too. You hope that we can fix this wage inflation problem with just reducing job openings and having not, you know, very few or no one lose their job. It's certainly a really tough needle to thread, but certainly we think we're going to get part of the way there with just reducing job openings.

00:29:16:15 - 00:29:36:17


And then certainly you'll have some layoffs. We've already seen some layoffs. Certainly technology has gotten a lot of headlines for that. But we've got a ways to go. We, unfortunately, are going to have to see a little bit more softening in the labor market here. So that is by far and away the most important economic data point this week.

00:29:36:17 - 00:29:46:23


It's going to be Friday. So I think that's it for me. Anything else you want to add to send us home here, Adam, or we good to go?

00:29:47:13 - 00:30:07:01


I think we're pretty much good to go. On the technical side, you know, we continue to watch that kind of 3,940 level if we do get any more downside or another retest. So watch that 200-day moving average. You know, if we look at resistance, we get a bit of a rally. Next major spot is going to be kind of 4,100 that goes back to those December highs.

00:30:07:01 - 00:30:11:05


So that's really what we're looking at on the S&P for the technicals this week.

00:30:12:19 - 00:30:15:04


Yep. And the word of the day, resilience.

00:30:15:21 - 00:30:16:10


There we go.

00:30:16:13 - 00:30:31:14


A lot of that and hopefully that will continue. So thanks, Adam, for joining this week. Really great discussion. A lot of good topics in there. Thanks everybody for joining another edition of LPL Market Signals. We will be back with you next week. See you then and take care.


Silicon Valley Bank Collapse

In the latest LPL Market Signals podcast, Chief Equity Strategist Jeffrey Buchbinder and Chief Global Strategist Quincy Krosby discussed implications of the Silicon Valley Bank (SVB) collapse, assessed the risk of contagion, compared this situation to 2008, and reviewed the team’s latest asset allocation views.

The failure of SVB was caused by several unique factors: 1) the bank’s focus on venture capital funded startups, 2) the mismanagement of the interest rate sensitivity on the bank’s balance sheet, and 3) the run on the bank caused by public venture capital community concerns about the bank’s health.

In response to the bank’s collapse, on Sunday the Federal Reserve (Fed) and U.S. Treasury stepped in to backstop depositors. Regional bank shares were under heavy pressure on Monday as some speculated about potential runs on other banks. That risk cannot be completely discounted, but the Fed’s emergency lending program helps limit contagion risk.

The strategists discussed potential opportunities that may be present following SVB’s collapse. LPL Research’s asset allocation committee believes financials-heavy preferred securities are worth considering following the latest downdraft, but is waiting to see approach to bank stocks.

Regarding the comparison to 2008, the strategists noted that the problem for banks this time is interest rate risk, not credit risk. Rising interest rates caused the value of the bonds on SVB’s balance sheet to lose value, which, along with fleeing deposits, caused the bank to fall short of necessary capital levels.

Finally, the strategists reviewed LPL Research’s recommended asset allocation for equities and previewed the data for the week ahead, including the consumer and producer price indexes.

Tune In Now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the U.S. and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunesGoogle Podcasts, or Spotify and find us on the LPL Research YouTube channel.


Read. Listen. Watch.

Keep up with economic insights from the LPL Research team. Read Weekly Market Commentary. Listen to Market Signals Podcast. Watch Street View.

LPL Newsroom

Thought leadership. Advisor stories and tips. And, Research. Find the latest insights from advisors, what’s new for advisors, and the latest from LPL Research.

LPL’s Thought Leadership Series

Throughout the year, LPL’s Thought Leadership team takes a look at those things that impact and help advisors, providing advisor stories and advisor solutions.


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.

The Bloomberg U.S. Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 


For Public Use — Tracking#: 1-05363785