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Stocks Mixed
Although the S&P 500 and the NASDAQ regained some of the ground lost in the previous week’s sell-off, markets were choppy and returns varied widely across asset classes. The Dow fell slightly and instability in segments of the U.S. and European banking industries kept investors on edge.
For the second week in a row, U.S. small caps lagged their large-cap peers by a wide margin as financial system stresses weighed on smaller companies. A small-cap benchmark, the Russell 2000 Index, fell 2.6% for the week; over the past two weeks, its decline was more than 10%.
The week’s market volatility was driven primarily by the fallout from two U.S. bank failures and stresses at a midsize lender that secured a $30 billion deposit pledge on Thursday from a consortium of 11 large banks. In addition, a troubled European bank received emergency assistance from Switzerland’s central bank.
Prices of U.S. government debt surged for the second week in a row, sending yields sharply lower, with the steepest decline coming at the short end of the yield curve. After ending the previous week at 4.59%, the yield of the 2-year U.S. Treasury note fell to around 3.82% on Friday. As recently as March 8, it had been as high as 5.07%.
The price of U.S. crude oil tumbled below $67 per barrel on Friday, slumping to the lowest level in more than 15 months. Oil fell around 13% for the week as instability in segments of the banking industry added to recessionary fears, which could weigh on demand for oil.
U.S. inflation fell for the eighth consecutive month, slipping to the lowest level since September 2021. The government’s Consumer Price Index recorded a 6.0% annual rate in February, down from 6.4% the previous month and in line with most economists’ expectations.
The price of Bitcoin on Friday rose to nearly $27,000, its highest level since last June, as the most widely traded cryptocurrency surged 34% for the week. On a year-to-date basis, Bitcoin was up 61% as of Friday.
Current risks involving segments of the banking system have injected fresh uncertainty into the next meeting of the U.S. Federal Reserve, which is scheduled to announce its next move on interest rates on Wednesday. Earlier expectations for another rate hike of either a quarter percentage point or a half point have been thrown into doubt, with some observers suggesting the Fed may keep rates unchanged.
Source: John Hancock Investment Management
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TD & Charles Schwab Stability | |
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Charles Schwab himself wrote an article last week addressing the recent industry events around bank failures along with his perspective of safety with a company like Charles Schwab (which bought out TD Ameritrade).
Specifically, he pointed out the following in regards to individuals who have their investment accounts with Charles Schwab (and also currently at TD Ameritrade):
- Customer brokerage investments at Schwab such as stocks, bonds, mutual funds, exchange traded funds, and money market funds are held at third party depository institutions and custodians such as the Depository Trust Company and Bank of New York for the exclusive benefit of clients. With Federal Reserve supervision, Schwab has additional regulation that goes beyond that of just brokerage or mutual fund company regulation.
- In the very unlikely event that Schwab should become insolvent, these segregated securities are not available to general creditors and are protected against creditors' claims.
- Brokerage assets are covered by SIPC insurance, which works to restore to customers their securities and cash – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000 for each separate legal account, which includes a $250,000 limit for cash held in a brokerage account. Of the few times SIPC insurance has been used in the securities industry, 99% of eligible client claims got their assets back.
- Schwab also maintains excess SIPC insurance protection of up to a combined total of $600 million for additional client protection.
- Schwab has served its brokerage clients for 50 years through all financial environments and has always remained solvent.
In short, having your investments at a company like Charles Schwab is different from the issues Silicon Valley Bank, Signature Bank, and now Credit Suisse have faced. Charles Schwab and TD Ameritrade are simply “custodians” or recordkeepers of the investments our clients own. If those companies themselves went under, client investment accounts are not subject to their creditors and would be moved to another custodian.
We want to reassure all of our clients that what is going on in the banking industry is not a risk to your investment accounts, other than the impact it may have on the stock and bond market going up or down.
For the full article, please click here.
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The run on a California bank brought the Bailey Brothers Building and Loan to mind. If you’re a fan of It’s A Wonderful Life, you probably remember the scene where George and Mary Bailey distribute their honeymoon savings to make sure the Building and Loan remains solvent. George explains to the townspeople:
“You're thinking of this place all wrong. As if I had the money back in a safe. The, the money's not here.
Well, your money's in Joe's house...that's right next to yours. And in the Kennedy House, and Mrs. Macklin's house, and, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can.”
While banking is not that simple or straightforward, programs are in place to protect depositors.
For example, the Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 in qualifying accounts at FDIC-insured banks per depositor. If you have accounts at multiple FDIC-insured banks, each account may be insured up to the maximum. (In many cases, depending on how various accounts are titled, more than $250,000 may be insured at a single FDIC-insured institution.)
Last week, the Treasury Department, the Federal Reserve, and the FDIC augmented FDIC protections by introducing the Bank Term Funding Program (BTFP). The program offers one-year loans to banks, savings associations, credit unions, and other eligible depository institutions.
Participants in the program, “can pledge their assets such as bonds and mortgage-backed securities at par, or the value at which they were originally issued, instead of market value, giving banks a greater borrowing capacity since bond prices have fallen” reported Karishma Vanjani of Barron’s. The measure makes it possible for banks to avoid selling long-dated bonds at a loss when depositors withdraw money.
Federal Reserve officials indicated the BTFP provides enough financial support to protect all of the deposits in the United States, reported Craig Torres and Christopher Condon of Bloomberg.
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AJ Advisors
www.ajadvice.com
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Phone: (615) 709-8709
Fax: (615) 505-3306
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John Stauffer, CFP®
Partner
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Andrew Quinn, CFP®
Partner
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Emily Triano
Operations Associate
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