If you squint a little, Tuesday looked like a "normal" trading day — almost. That is to say, U.S. markets yesterday were concerned with inflation and interest rate fears, not a banking crisis.
Of course, the major news of the day still revolved around banks. Earlier today, UBS reappointed Ermotti to the position of Group CEO, citing Ermotti's successful repositioning of the bank after the 2008 financial crisis, which allowed UBS to "regain the trust of clients and other stakeholders." This suggests that UBS is prioritizing stability as it proceeds with its merger with Credit Suisse.
Across the Atlantic, on Tuesday, the Senate grilled U.S. regulators on SVB's collapse. Banks slipped after regulators said they were in favor of tighter rules for banks. But the movement — the SPDR S&P Regional Banking ETF dropped 0.09% — was marginal, compared with the drastic swings of the past two weeks.
While we don't know the effects of UBS' CEO swap yet, in the U.S., interest rates, arguably, had a greater effect than the Senate hearing on market moves. U.S. Treasury yields climbed again — the 2-year yield hit 4.08%, breaching the 4% threshold for the first time in almost a week, and the 10-year yield rose to 3.571%. The rise in yields suggests traders are growing confident the banking turmoil is subsiding, and they're turning their attention back to inflation.
Indeed, the expectations index from the Conference Board showed consumers think inflation will remain at 6.3% over the next 12 months, and their short-term outlook is at a level consistent with an imminent recession. (Though it has to be acknowledged that consumer outlook brightened slightly from February, even after SVB's collapse.)
As a result, the rate-sensitive Nasdaq Composite fell a second day, losing 0.45%. It might seem like a small decline, but Solus Alternative Asset Management's Dan Greenhaus warned "only the top quintile [of the Nasdaq] is up; all four of the other quintiles are down," which indicates the index is "a little weaker than the headline suggests." Other major indexes didn't fare better. The S&P 500 sank 0.16% and the Dow Jones Industrial Average slid 0.12%.
"For the time being, investors seem to be looking beyond the challenges in the financial sector and recognizing that U.S. economic growth continues to be resilient," said Brian Levitt, global market strategist for Invesco. In a bizarre way, even if that's bad news for inflation, that's probably good news for everyone who's been consumed by banking fears in recent days.
