Investors who are looking for a break from market volatility are understandably concerned about the collapse of SVB Financial Group (NASDAQ: SIVB) the parent company of Silicon Valley Bank, on Friday, March 10. The instinct to push the panic button may be strong. But when it comes to your investments, this is a time when patience, more than panic, should be your approach.
At the time of this writing, there’s a lot we don’t know about the fate of the bank and of the money owed to depositors. Investors hate uncertainty, which could make for a volatile trading session on Monday.
But this is not a week where a single news story will dominate the news cycles. With two key readings on inflation due to be released this week, and the latest reading on consumer confidence on Friday, investors will have plenty of data to consider. And all of it is likely to be more consequential to your portfolio than the fate of Silicon Valley Bank.
A Lifeline for Depositors
On Sunday morning, Treasury Secretary Janet Yellen said there would be no bailout for Silicon Valley Bank. But that only has to do with equity investors.
There is still the issue of what to do about the bank’s depositors getting most, if not all, of their money back. And there needs to be some assurance to anxious consumers of how the FDIC will guarantee deposits to prevent further bank runs.
To that end, as of 6:00 p.m. on Sunday, March 12, the Federal Reserve plans to ease access to its discount window. This will allow banks to turn assets that have lost value into cash without the losses that befelled Silicon Valley Bank. The Fed and Treasury are also preparing to use the Federal Reserve's emergency lending authority to backstop deposits.
Is this a bailout by another name? Investors will have their opinions. Yellen declared that the American taxpayer will not be on the hook for any of the cost of this program. The state of the federal budget makes that last statement irrelevant. The nation is well past the stage of tax revenue paying for their programs. The concern for the Federal Reserve is that the money supply is about to increase … again.
We Don’t Know What We Don’t Know
Another thing we don’t know is if this is an event on par with the 2008 financial crisis. Yellen expressed her belief that the nation’s banks are well capitalized and that this event is not the same as the one that led to a federal government bailout of the nation’s largest banks, making the words “too big to fail” part of our national vocabulary.
But it’s a near certainty that businesses will begin to move their money to one of the nation’s largest banks to protect themselves. While that may be an event for regional bank stocks, it’s not likely to mean much to the broader market. Investors have other concerns there.
Inflation Remains the Bigger Threat
That said, none of that is a reason to buy or sell individual stocks you own. However, Tuesday and Wednesday will bring the next readings on the Consumer Price Indes (CPI) and the Producer Price Indes (PPI) respectively. A strong move in one way or the other will be a sure market mover.
This data will also be a key factor in whether the Federal Reserve continues to raise interest rates. And, if so, by how much. There’s growing talk that the Fed may raise rates by 50 basis points at its next meeting.
But there is growing evidence that the Federal Reserve’s increasing pressure on the financial system is having an effect. And immediately after the Federal Reserve’s backstop announcement for depositors, the futures market climbed 1%. That seems to suggest that at least, initially, markets believe the worst case scenario may have been averted.
Stay Focused on YOUR Big Picture
In life, the known is often much better than the unknown. But it doesn't always make you feel better. Nobody can tell you how to feel as an investor. I’m not going to try. Your investment hopes and dreams are unique to you. I'll simply remind you that you need to keep your emotions out of your investment decisions. This will be a week where the markets are likely to be volatile.
That being said, markets rarely behave the way a chart or the facts would indicate they should. If you have a time horizon of more than a year or two, widen your lens and remember that if you own quality companies with proven revenue and earnings, you’re going to be fine in the end. So, sit tight and maybe do the best thing you can do this week … nothing.