As a follow up to our recent blog post, in the last 24 hours markets received some resolution to the Silicon Valley Bank (SVB) drama. Most notably, the U.S. government enacted the following backstops to protect U.S. depositors:  

Folks...lots of rumblings on the Silicon Valley Bank (SVB) failure ranging from the sky is falling to nothing to see here.  Everyone is sifting through the ashes and data is still emerging, but we thought it would be appropriate to do a quick post on what we know and our interpretation of the events thus far.  This may change as things emerge, but these are our thoughts currently. 

The market’s 2023 rally fizzled in February as strong economic data led to the realization that rates may need to be higher than expected in order to tame inflation. This resulted in a meaningful uptick in rates and a further inversion of the yield curve, which drove the Bloomberg Aggregate Bond index lower by 2.59%. U.S. stocks, trading on the hopes of a Fed pivot later in the year, also sold off, with the S&P 500 declining by 2.44%.

Markets started the new year with strong returns across nearly all equity and fixed income asset classes, a welcome reversal following the losses most investors experienced in 2022. January’s rally was largely driven by the hope that a Fed pivot or pause was on the horizon, as a number of key economic data points indicated that U.S. inflation was continuing to cool.  

2022 ended as one of the worst calendar years on record for investors, with U.S. large cap stocks declining by just over -18% and investment grade bonds sliding by -13%. While equity market declines weren’t necessarily an outlier, bonds were another story. The -13.01% loss for the benchmark Bloomberg Aggregate Bond index was by far its worst annual decline in its history, dating back to 1976, equating to a near 3 standard deviation event.