Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

You can view the past four weeks’ Weekly Update in the link to my Blog.

To read my latest 2023 Q1 Smart Investor newsletter (What 2023 Holds, How to Invest, my list of books from last year), and catch up on back issues, go to my website.

 

Markets

Market scorecard as of close on Friday March 17, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	19,388	-2.0%	0.0%
U.S.	S&P 500	3,917	1.4%	2.0%
U.S.	NASDAQ	11,631	4.4%	11.1%
Europe/Asia	MSCI EAFE	1,987	-3.7%	2.2%

Source: Bloomberg, RBC Wealth Management

• The collapse of Silicon Valley Bank, and markets’ subsequent loss of confidence in other financial institutions, brought stresses in the financial system suddenly to the surface. An early knock-on effect during this period is the turmoil at Swiss financial institution Credit Suisse, a major global bank and investment firm.

You can read more about Silicon Valley Bank’s collapse in this article.

• UBS has agreed to buy Credit Suisse for US$3.25 billion over the weekend as Swiss regulators aimed to safeguard the country’s banking system while attempting to prevent contagion in global financial markets.

• In our view, the fallout from all of this could force the Fed to pause its rate hike cycle and quantitative tightening sooner rather than later, despite the fact there are not yet clear signs of when inflation will decline to the central bank’s two percent target.

• Although the market remains vulnerable to additional volatility and downside, these historical patterns demonstrate that the U.S. market typically bottoms well before economic conditions improve, and often when headlines and investor sentiment are still rather negative. This supports our view that investors with long investment time horizons should maintain long-term strategic asset allocations during this difficult period.

• TSX finished lower in Friday trading, off worst levels. Most sectors lower. Canadian equities posted a 2% weekly decline (following a nearly 4% drop last week) with the TSX now having erased all 2023 YTD gains.

• US equities finished lower in Friday trading, a bit off worst levels though S&P 500 saw support twice at 3,900 level. S&P 500 still higher for the week, while Nasdaq posted best weekly performance since November. Financials the big story again, as banks extended the week's sharp declines.

• Heavy selling pressure in U.S. bank stocks has driven negative S&P 500 performance since last week after returns on the S&P 500 Banks Industry Group plunged 10.5% over the same timeframe amid stress in the regional banking system following the collapse of Silicon Valley Bank (SVB) the previous Friday. However, despite poor banking performance this month, S&P 500 returns are still up 2% YTD led by strength in Technology and Communication Services.

 

Economy

Canada

• The Silicon Valley Bank (SVB) collapse took the financial markets by storm and left many investors pondering the implications and risks to the Canadian banking system. First and foremost, we believe the failure of SVB was driven by idiosyncratic risks, specifically the mismatch in duration between the bank’s assets (e.g., bonds) and its liabilities (e.g., customer deposits). In the case of the Canadian banks, assets and liabilities are far more diversified across businesses and funding sources relative to SVB, in our opinion.

• In a scenario where a bank’s capital levels become compromised, certain bonds and preferred shares would be automatically converted into equity to shore up the balance sheet. We believe an SVB-like event is highly unlikely to materialize within the Canadian banks.

U.S.

• Inflation at the producer level unexpectedly fell during February, underscoring easing cost pressures for wholesalers on the back of improving supply chains and falling commodity prices. Declining food prices was a main contributor to the slowdown after descending for a third month in a row while at the same time energy prices edged lower.

• Following the SVB collapse and pressure on the financial system, markets are back to pricing in Fed rate cuts this year while expectations for the peak Fed policy rate have fallen to below 4.7% as of yesterday’s close from about 5.5% a couple weeks ago. This suggests a reasonable chance the Fed proceeds with one more 25 basis point rate hike next week, before pausing amid a highly uncertain outlook.

Further Afield 

• Despite the markets’ turmoil, the European Central Bank (ECB) opted for a well-telegraphed 50 basis point increase in interest rates to fight the region’s stubborn inflation. Its statement suggested targeted liquidity would be available should banking sector volatility persist.

• China reported rebounds in consumer spending, industrial output, and investment, while unemployment rose and real estate investment continued to drop. The data were consistent with China’s target of around 5% GDP growth this year, which could boost global demand while U.S. and European economies face recession risks.

 

Notes About Companies in Model Portfolio

• TELUS (T) announced last Friday that its team members in the Telecommunications Workers Union, United Steelworkers Local 1944 (TWU) bargaining unit have voted to accept the tentative agreement reached by the parties in early March. This new four-year agreement, effective from 16-Apr-23 to 31-Mar-27, will cover more than 6,500 TELUS team members nationally.

• TD Bank Group (TD) launched a new Sustainable & Decarbonization Finance Target aiming to mobilize $500B CAD by 2030 to be deployed by 2030 toward low-carbon lending, financing, asset management and internal corporate program that support progress on climate change mitigation and adaptation and economic inclusion.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman