Stability Returns

The market appears to have stabilized after the short-lived regional banking crisis in the U.S. and Credit Suisse overseas.

The stabilization is mostly due to the government and the Fed's willingness to step in and provide liquidity to stop the bank runs from spilling over into the rest of the economy. Given this support, the trend lines from the October lows are still mostly intact, and the equity markets are driving to 4,300 on the S&P 500. This buoyant market move is intertwined with the assumption that the Fed will be lowering interest rates by almost 50 basis points (0.50%) by the end of 2023. However, this assumption counters the Fed’s dot plot for the end of this year as well as what they have clearly stated.

In the short run, stocks are entirely dependent on who wins this game of chicken—the Fed or the investing public—and who has a better understanding of inflation. Despite the Fed’s fumbling over the last two years, we would still side with their reading of where inflation is likely to be later this year and not the market view.

Best,

Pave Team