March 15, 2023
The sudden collapse of Silicon Valley Bank and Signature Bank risks pushing the US Federal Reserve uncomfortably close to the point of having to resolve a financial-stability trauma at the same time as fighting high inflation. The situation could force Fed Chair Jerome Powell and his colleagues to choose which problem demands the central bank's top focus. Regulators invoked something known as the "systemic risk exception" in allowing the Federal Deposit Insurance Corp. to guarantee uninsured deposits in the two banks. Yields on some shorter-term Treasuries collapsed half a percentage point on Monday following the bank failures, highlighting how investors have shifted their focus from worrying about inflation and interest-rate increases to how problems with banks could damage the economy.
The collapse of Silicon Valley Bank (SVB) and Signature Bank, and the resulting selloff in regional bank stocks, has raised concerns about the stability of the US banking system. It is not yet clear what exactly caused the failure of SVB, but it has prompted investors to rethink the prospects of regional banks, and may lead to a significant pullback in lending from firms that are facing pressure to raise deposit rates as the Federal Reserve has raised interest rates to fight inflation. The fallout from the failure of SVB underscores the risk of being forced to simultaneously fight two problems - financial stability fallout and inflation - which could force the Fed to choose which problem demands its top focus.
And here’s what’s to keep in mind as we move into the future: The stock market has historically tended to increase in value over the long term, despite short-term fluctuations and occasional downturns.
One commonly cited benchmark for the overall performance of the stock market is the S&P 500 index, which tracks the performance of 500 large-cap stocks traded on US stock exchanges. Since its inception in 1926, the S&P 500 has had an average annual return of around 10%, though there have been significant variations from year to year.
It's worth noting that past performance is not necessarily indicative of future results, and there is always a degree of risk involved in investing in the stock market. Additionally, there are many factors that can influence the stock market, including economic conditions, geopolitical events, and company-specific news and events, including the fall of Silicon Valley Bank.
Come what may of this outcome, we will still get up in the morning, go about our day, and the sun will rise again. This too shall pass, and if you need further assurance, talk to your financial advisor. The best we must do is make sure we make choices we won’t regret in 10 years.
Jennifer M. Snyder
Collapse of Silicon Valley Bank, Signature Bank Calls Fed Interest Rate Path Into Question - WSJ