Estimated read time: 3 minutes
Publication date: 13th Mar 2023 10:01 GMT+1
The last week was pretty volatile for the stock market as major indices such as the S&P 500, Nasdaq, and Dow Jones fell by 4.8%, 5.1%, and 4.5%, respectively in the past five trading sessions.
Silicon Valley Bank (NASDAQ: SIVB) dominated the headlines for all the wrong reasons. Silicon Valley Bank, or SVB, the backbone of the start-up ecosystem in the U.S., just collapsed. But what exactly happened?
SVB ended 2021 with more than $180 billion in deposits which it invested in long-duration fixed-income securities such as mortgages. This strategy caused an asset-liability mismatch and exposed SVB to interest rate risk as bond yields moved higher.
In the last few months, the demand for bank withdrawals gained pace, which meant SVB had to sell its investments at a loss.
SVB reported a loss of $1.8 billion on its bond portfolio, as $80 billion worth of bonds had a yield of just 1.5%.SVB collapsed because it had the highest-risk deposit base along with the lowest bank-loan to deposit ratio among U.S banking peers.
More than 50% of VC-backed start-ups in the U.S. have a banking relationship with SVB. But 97% of total deposits totaling $160 billion remain uninsured.
Garry Tan, the CEO of Y Combinator, called the fallout an "extinction-level event for startups". The collapse was the largest in the U.S. banking sector since the financial crisis of 2008.
SVB was among the top-20 banks in the U.S. and the possibility of contagion dragged several other bank stocks lower.
In addition to the extensive coverage of this saga lets see what else can investors expect in the next few days.
All eyes on the inflation report
Next week, we'll be receiving the latest reports on inflation in the United States. The Consumer Price Index (CPI) for February is due on Tuesday and is expected to show a likely increase of 0.4% in consumer prices compared to January's 0.5% gain. On a yearly basis, prices are projected to have risen 6.2%, a slight deceleration from January's rate of 6.4%.
Following this, the Producer Price Index (PPI), which tracks inflation from the standpoint of goods manufacturers and wholesalers, will be released on Wednesday. The projected rise for last month's producer prices is 0.3%, lower than January's stronger-than-expected gain of 0.7%. On an annual basis, producer prices are likely to have gone up by 5.7%, which is a slight deceleration compared to January's 6% gain, and a considerable difference from March 2020's 40-year high of 11.7%.
Retail sales and consumer spending
The U.S. Census Bureau and the University of Michigan are set to release key economic indicators this week. On Wednesday, the Census Bureau will unveil retail sales figures for February, providing insights into the state of consumer spending.
Retail sales, which are not adjusted for inflation, are expected to show a modest increase of 0.2% from the previous month, following a robust 3% gain in January. Despite the slowdown in the economy, consumer spending has remained resilient thanks to high nominal wage gains, a tight labor market, and excess savings accumulated during the pandemic.
On Friday, the University of Michigan will release its preliminary March reading of the Consumer Sentiment Index (MCSI), which gauges consumer confidence in the U.S. The index reading is expected to rise to 67.5 from 67 in February, marking the highest reading since December 2021.
The rebound in consumer sentiment has been noticeable in recent months after hitting an all-time low of 50 in June 2021, surpassing previous record lows set during the Great Recession and the stagflationary era of the 1970s and early 1980s.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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