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Monthly overview March – Banks cause tumult but stock markets remain resilient

Source: Written by Gilles Coens, investment expert at MeDirect

March was an eventful month on the stock markets, which have had other very volatile months. D it has to do with, among other things,  the situation of a number of American banks and the bank Credit Suisse. Banks that are in trouble bring us some bad memories. Nevertheless, it is smart to look at this rationally.

Despite some difficult days, the loss of the indices was  limited. At the time of writing this article in March 2023, the Eurostoxx 50 was losing about 1.4% and the US S&P 500 was at 0%, obviously with strong fluctuations throughout the month itself.

Banks in focus

In the US, Silicon Valley Bank (SVB) and Signature Bank got into trouble, and on the European continent, it was Swiss bank Credit Suisse that was in the spotlight. The banks mentioned suffered losses  during the same period. However, they were always isolated cases with different causes. SVB mainly provided loans to young technology companies and were therefore highly concentrated on a particular sector. Moreover, the bank had a failing risk policy thatdid not provide the necessary robustness. However, Credit Suisse’s problems had been known for much longer. The bank was embroiled in several scandals which, despite restructuring and management changes, it could not control.

The rising interest rates mean that many financial institutions can be more profitable due to better margins, but the rise in interest rates on the other hand causes “cracks” in the system. The sharp rise in interest rates not only caused banks such as SVB to run into difficulties, but also to look at the financial sector with a magnifying glass.

Fortunately, we are not in 2008, in the previous financial crisis. Lessons were learned from that crisis and regulations, such as supervision, were strengthened. Banks have larger capital buffers and better liquidity ratios than they did then. In 2008, there was also a specific “real estate bubble” in the U.S. A crisis caused by junk mortgages that were “exported” to the whole world via derivatives or other financial products.

Central banks

Central banks have not concealed that the sharp rise in interest rates could hurt, as Powell (Fed) put it in 2022. This will indeed slow down economic activity: certain companies will be less resilient to interest rate rises and this will also have a negative impact on employment. Interest rate rises limit inflation and achieve price stability. This stability is necessary in order to have long-term economic stability.

Central banks do not react panicked to what  is happening in the banking landscape today. The ECB did not let itself be distracted in March and raised interest rates further as expected by 0.50%. The Federal Reserve also raised interest rates in March. However, she played it safe with an increase of only 0.25% compared to the expected 0.50%. The Fed also indicated that the end of interest rate hikes is in sight.

Both central banks will further assess the situation, not only in relation to inflation but also in response to the existing tensions in the markets.

Strong economic data

However, despite the malaise at a number of banks, we see that the economic data is not bad. Unemployment rates are at an all-time low, and unemployment rates for the eurozone are also better than before the pandemic.

Confidence indicators of the PMI (Purchasers Managers Index) also evolved further positively above 50 in March. This happened both in Europe (54.1 coming from 52 in February) and in the US (53.3 coming from 50.1). PMIs above 50 historically indicate further growth in the economy. Standard & Poors, which calculates the indexes, concluded the following from the latest PMIs:

“The PMI broadly corresponds to annual GDP growth of nearly 2%. Which paints a much more positive picture of economic resilience than the declines seen in the second half of last year and early 2023.”

At the end of March, it was also announced that orders for capital goods (business investment) in the US unexpectedly rose slightly by 0.2% in February. Spending on capital goods is sensitive to rising interest rates, and is therefore an important indicator in current times.

What does this mean for my investments?

Most analysts agree: this is not a banking crisis like in 2008. However, the problems at a number of banks are increasing general concerns.  For example, banks could become more restrictive on new credit applications.

There are divisions about a possible recession. For some, a recession seems and remains avoided, and macroeconomic data do not indicate a recession either. Other analysts have just seen the likelihood of a recession increase following the turmoil at the banks.

For your  investments, it remains extremely important to have a good spread within  your  portfolio and to stay true to your investmentgoals.  For investors who want  to flee to safe havens, (high-quality) corporate bonds and government bonds can provide diversification within the portfolio. In the meantime, interest rates have risen sharply compared to a year ago, so that this asset class can now also generate interest income. Investing in bonds is possible, but bond funds or bond ETFs can also  offer a solution so that you can better spread risks such as credit risk. They can also respond to interest rate risk, which may be different for short- and long-term bonds, for example. However, mixed funds offer the possibility to invest in both bonds and shares, where the fund manager will decide on the allocation.

Diversification is also important within shares. Both value and growth companies have their place within a portfolio today. Growth markets also still offer opportunities for part of the portfolio. The reopening of the Chinese economy is having a positive impact on Asia. Central banks are already further along in the interest rate cycle, where in some cases central banks have already moved to a more accommodative monetary policy. However, growth markets remain increasingly risky due to geopolitical reasons, which is the case for China, for example.

So always keep a healthy spread in your portfolio with a long-term vision. Are you hesitating to invest? Spreading your purchases over time is a solution to flatten your average purchase price if markets were to fall.


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MeDirect Bank is a trading name of MeDirect Bank (Malta) plc, registered under company number C34125, MeDirect is licensed to conduct banking activities in accordance with the Maltese Banking Act (Cap. 371) and investment services under the Maltese Investment Services Act (Cap. 370).