WEEKLY SUMMARY: Dow posts worst week since June as SVB collapsed
Stocks pulled back sharply over the week, as investors absorbed more hawkish talks from Jerome Powell and signs that the Fed still had work to do in cooling inflation. The S&P 500 Index fell on Friday to its lowest intraday level since January 5 as the selling accelerated after the index broke both its 100-day and 200-day moving averages. Financials led the declines and contributed to the pronounced weakness in value stocks. Concerns grew throughout the week about the health of Silicon Valley Bank (SVB) as customers pulled deposits after the tech-oriented regional bank was forced to sell and realize losses in securities held on its balance sheet in order to meet capital requirements—marking the 2nd biggest bank failure in US history. Trading in SVB stock was halted Friday morning, and the FDIC then placed the bank into receivership to protect depositors. Stocks in other regional banks fell in response, although only moderately. Large US banks held up better, in part because stricter banking regulations required them to previously mark down the value of some securities. Friday’s flight to safety left the yield on the US 10-year Treasury down roughly 27 basis points for the week. Shares in Europe fell amid worries about stress in the banking system. Chinese equities retreated as signs of weakening demand and a lower-than-expected 2023 growth target tempered concerns about the country’s outlook. The dollar and gold spiked while Bitcoin and altcoins tumbled.
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Most of US equities indices rose to record highs, as investors wagered that a “red sweep” (Republicans winning Presidency, Senate and Congress) would result in faster earnings growth, looser regulations, and lower corporate taxes. The small-cap Russell 2000 Index surged 8.57% for the week but was the sole benchmark to remain out of record territory. Meanwhile, the Dow Jones hit 44.000 for the first time while the S&P 500 closed just shy of 6,000, up 4.7% for the week, its best weekly gain in almost a year. On Thursday, the Fed announced a 25bps rate cut, its first easing move since cutting rates by 50 basis points in mid-September. In terms of economic data, the October ISM services sector activity came in at 56.0, well above expectations and the best reading since August 2022. U.S. Treasuries generated positive returns heading into Friday, as yields largely ended lower than where they ended the previous week.