Bank Panic And Strong 1Q '23 Economic Growth
Published Friday, March 17, 2023 at: 7:50 PM EDT
Four medium and small sized U.S. banks required Federal regulators to take over management of their operations and assets or shore up their depositor bases since March 7, casting new uncertainties over the investment outlook. The threat to the banking system complicated the Federal Reserve’s aggressive yearlong monetary tightening campaign to choke off inflation without triggering a recession.
The confluence of a banking crisis as the Fed’s following eight hikes in the Fed funds rate in the past year has unnerved the stock market and made short-term Treasury bills yields higher than 10-year Treasury bond yields, which is another strong reason to expect a recession in 2023.
Amid the ominous financial economic backdrop, on Friday The Conference Board (TCB) said the Leading Economic Index (LEI) for the U.S. fell again by 0.3% in February, after also falling by 0.3% in January, marking its eleventh consecutive monthly decline. Tracked monthly since 1978 and bi-monthly since 1967, the LEI is a highly reliable predictor because it collapsed months before every recession in modern U.S. history – except the Covid-19 recession, which was a 100-year anomaly.
The economics team at TCB, a think tank and lobby group, said in a briefing for C-suite executives at Fortune 1000 companies on Wednesday, March 15, a recession in 2023 is highly likely. This was clearly bad news, and Friday’s new LEI report further strengthened the case for a recession and an extension of the bear market in stocks that started in mid-June 2022.
However, on Thursday, March 16, the Atlanta Fed GDPNow model estimated the U.S. economy would grow 3.2% in the current quarter ending March 31, 2023. GDPNow is constructed and tracked by staff economists at the Atlanta Fed to show what’s happening in the economy in real-time. While other U.S. economic growth indicators reflecting the effects of the banking crisis on the economy will not be reported until April, GDPNow is the only real-time publicly available indicator of current economic activity. After adjusting for this week’s retail sales report and labor market data, the 3.2% growth expected in the first quarter GDPNow index contradicts the usually reliable recession indicators.
Stock and bondholders are paying a price in the form of investment losses. Criminal as well as civil charges against the banks and their top executives are reportedly being considered by Federal regulators. To be clear, bailing out stock and bondholders would be a moral hazard. They knew the risks of stocks and bonds. However, guaranteeing depositors with more than $250,000 in bank saving accounts will not suffer losses is not the same. Savings in banks are expected to be safe so guaranteeing assets beyond $250,000 is not creating a moral hazard to bank depositors. The two-faced U.S. economic news comes down to this: the banking crisis, while not to be dismissed, is not a systemic threat to the U.S. financial system.
The S&P 500 stock index closed Friday at 3916.64, down -1.10% from Thursday, and up +1.43% from a week ago. The index is up +75.05 from the March 23, 2020 bear market low and down -18.34 from its January 3, 2022 all-time high.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
- Where The Boom No One Expected Gets Its Legs
- Latest On Inflation, Consumer & Business-Owner Optimism
- Slower Growth But Economic Outlook Remains Bright
- Labor Market And Inflation Drove Stocks Higher
- Costlier Homes Expected To Appreciate 4% Annually For The Next Five Years
- Leading Economic Index Falls For 16th Straight Month
- Tax-Sensitive Investment Planning In 2023
- A Healthy Recipe For Growth Is Simmering
- Good News About The U.S. Economy
- The New Bull Market Has Broadened
- An Economy Goldilocks Would Definitely Live With
- Monthly Pace Of New-Job Creation Slowed In June, Which Is Good News
- Standard & Poor's 500 Gained 9.9% In Q2 2023
- This Week’s News For Investors
- This Week’s News For Investors Is Very Good
- Why The New Bull Market Theory Was In The News This Past Week
- Strong Jobs Report Caps A Week For The Record Books
- Why Stocks Rose Friday Despite A Rise In Inflation In April
- Weekly Investor Update
- The Confluence Of Bad News For Recent Retirees And Those About To Retire
- Good And Bad News This Week For Investors
- Getting There: The Economic Balancing Act Progressed In March
- Stocks Gained Friday But Closed Fractionally Lower For The Week
- Good News On Inflation But A Recession May Be Hard To Avoid