Banking Sector
Up until a few months ago, most investors had not heard of Silicon Valley Bank (SVB). With startling headlines, it is understandable that many investors were spooked as banks in the US and Switzerland swiftly collapsed. However, we firmly believe that the recent events were isolated and will not lead to a large-scale banking crisis. Today, the large banks in Canada and the US are much stronger and more regulated than they were in 2008. In fact, many of the large banks have benefitted from the recent events. In the US, there are approximately 4,000 banks (there are six large banks in Canada). In the days following SVB’s collapse, the largest 25 banks in the US gained $120 Billion in deposits while the banks not in the top-25 lost $108 Billion. While there still may be some aftershocks to come, the largest banks will likely continue to grow in the months and years ahead.
Interest Rates
One of the implications from the banking crisis is that the interest rate hiking cycle will likely come to an end sooner than previously thought. In Canada, the Bank of Canada recently said that they will be holding interest rates steady. In the US, the markets are currently anticipating one final 25 basis point (1/4 of 1%) increase in May. Following many months of increases, we may begin to see interest rates falling in the second half of 2023. Economic data, including employment and inflation information will likely impact the pace of interest rate decreases later this year.
Other Notable Items
In Europe, a much warmer-than-expected winter has helped drive the price of natural gas dramatically lower, helping the Eurozone avoid a recession. During the summer of 2022, the price of natural gas was above $10 – it is currently around $2. Breakthroughs in artificial intelligence (AI) will likely have a profound impact on our lives (beyond writing university papers). Things are happening quickly, and we expect to hear a lot more about AI in the coming months. We are happy to own Microsoft and Google who we think will be able to profit from this exciting area.
Pearlstein Wealth Update
As many of you know, both Carmen and Alicia will be going on maternity leave in the second quarter. We are very excited for them to be starting their families! Our team will continue to be staffed by Sara, who has been part of the team for over a year, as well as our newest team member, Sanam. In addition, we will likely be hiring a summer student. Below is a picture from Carmen and Alicia’s baby shower!
Wishing everyone a happy Spring.
Pearlstein Wealth
