Volatility Eases in the Wake of Emergency Liquidity Measures

U.S. Treasury Secretary Janet Yellen sought to reassure depositors and investors that American bank deposits were safe after the Federal Deposit Insurance Corporation seized the failing banks and guaranteed all uninsured deposits. Yet, investors still fear that more failures could be on the horizon, dumping regional bank stocks, despite the Fed’s emergency liquidity measures ahead of the 25 basis-point rate hike. First Republic Bank (FRC) stocks tumbled again, down 46.33% for the week. 

The size of the Fed’s balance sheet increased significantly over the last two weeks (+$391.5 billion) wiping out 63% of the quantitative tightening since mid-April. At least, the Fed’s extraordinary measures to shore up confidence in the banking system have stabilized capital markets. The financials sector ended the week up 0.58% even though it’s still a drag on the broader market. The benchmark S&P 500 was up 1.39% week-over-week (+3.42% year-to-date) while the CBOE volatility index (VIX) sank almost 15% (closing at 21.74). The tech-heavy Nasdaq gained 1.66% (+12.97% year-to-date).

European stock indices followed suit. The MSCI EMU rose 1.15%. It is now up 7.26% for the year. In the UK, the FTSE added 0.95% bringing its year-to-date performance to -0.62%.

In Asia, Japan’s Nikkei edged up 0.19% (+4.95% YTD). China internet stocks moved higher after Tencent reported a return to revenue growth for the last quarter (stock up 11.46% for the week). The Shanghai Composite notched a second weekly gain (up 0.46%, +5.71% YTD).

Utilities and real estate sectors in the red 

The S&P real estate index continued to show signs of weakness early this week, with the poor performance of prominent companies such as American Tower REIT Corp (AMT), Equinix REIT Inc (EQIX), Crown Castle International REIT Co (CCI), and Public Storage REIT (PSA). Yet, they rebounded strongly on Friday, but not enough to recoup the previous losses. With a weekly fall of 1.38%, the real estate sector was the week’s poorest performer. Utilities also weighed on the broader market (-1.20% for the week). This is one of the worst S&P sectors this year (-6.88%) along with financials (-9.44%) and energy (-11.05%). 

All the other sectors ended the week in positive territory. Communication services led the pack, just as they did last week, up 3.40%, helped by Alphabet-Google (GOOG, up 3.51%), Meta Platforms Inc (META, up 5.32%), and Netflix (NFLX, up 8.20%). Energy was also in the ascendancy (+2.29%) after losing 12% over the last two weeks. The WTI crude oil gained 3.69% at $69.20 a barrel.