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After last month’s largest banking crisis in the United States at Silicon Valley Bank, the stock market faces repercussions. The bank withheld long-term debt that had declined in market value as the Fed raised interest rates to fight inflation. As a result of this, the bank collapsed. Market watchers said that many investors have appeared more fearful of a potential downturn and are concerned about a possible rescission.
In 2023, the market’s focus shifted from inflation to recession this year; the recent employment data supports that inflation is slowing. Over the past week, U.S. Central Bank’s precaution is affecting the labor market, leading to signs that the labor market is softening. Chief executive at Infrastructure Capital Advisor, Jay Hatfield, explains, “It is good to extend the labor market weakening song, but there are fears that the economy is going to crash or crack.” It is also unsure if the Fed is done raising rates and if signs pointing towards a recession in the economy are clear.
The Dow Jones Industrial stock dipped 0.1% Monday, April 10, and S&P 500 dropped 0.7%. Liz Young talks about how a pullback could be seen, resulting in a peak-to-trough decline in the S&P of 30% or more. This means the stock index could reach a low of 3,357 from its most recent peak on January 3, 2022, at 4,796.
The stock market and the slowing economy in the U.S. are also showing impacts on the dollar. The ICE U.S. dollar index is down almost 11% from last year. On April 12, 2023, the DXY fell 0.6% after the March consumer price index showed slowing price gains and dropped for four straight weeks. Solita Marcelli and Alejo Czerwonko at UBS Global Wealth Management stated, “...expect the dollar to weaken as the U.S. growth and interest rate premium relative to the rest of the world erodes in the coming months.” Additionally, a weaker U.S. dollar in the near future is not based on the assumption of a declining global currency status. It is recommended for investors to “diversify their dollar cash or fixed income holdings, reduce allocations to U.S. equities, or position in options or structured strategies that could deliver positive returns in the event of dollar weakness.”
Europe, Asia, and various emerging markets are also improving as the United States economy is slowing. The pan-European Stoxx 600 was up more than 13% this month. China reopened much quicker than predicted from Covid-19, in turn offering relief to the European outlook. In India, stock market investors have been advised to look at the U.S. Federal Department's statement on the banking crisis because it will hit the business of I.T. companies in India and other developing countries. Long-term investor Avanish Gorakshkar, Head of Research at Profitmart Securities, said, “After U.S. Fed's 25 bps rate hike, U.S. dollar is expected to find selling pressure and hence I.T., banking, and export-oriented auto stocks are expected to become highly volatile. However, this volatility in I.T., auto, and banking stocks should be considered as [a] good buying opportunity by positional investors.”
The recent banking crisis at Silicon Valley Bank has had repercussions on the stock market, with concerns about a possible recession and a weaker US dollar. Investors are advised to diversify their holdings and consider the volatility in IT, auto, and banking stocks as a buying opportunity. While Europe, Asia, and emerging markets show improvement, the current economic climate remains uncertain, and caution is recommended.
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