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Weekly Market Update (March 12, 2023)


Market sentiment swung this week. For starters, Powell’s speech has triggered the markets to price in higher odds of a 50bps hike. Later in the week, liquidity concerns increased after the collapse of two major banks, leading to a reversal rally. Short-term yield experienced swings of about 50bps. S&P, Nasdaq and Dow were down about 4.5%. The mixed data signal and concerns about the banking system weakened the peak rate pricing and deepened curve inversion. Overall, a 25bps is still more likely than a 50bps hike at the March meeting.

Job Reports: February job reports indicated a healthy job market, with more jobs added. The signal is mixed as the surprise rebounded in unemployment and slower wage growth are reducing the concerns about the overheated labor market.

SVB: The major lender for startups - Silicon Valley Bank (SVB) shut down due to the high rate environment increased funding costs and reduced opportunities for startups. Banks in S&P500 dropped about 11% this week as investors are worried about the contagion effect derived from the liquidity issues from regional banks that could spill over to larger banks. However, market may overreact as the capital and regulatory requirements have improved since the global financial crisis.

ECB: The hawkish ECB policy is implying less room for a rally unless the data turns. Sovereign spreads are vulnerable to the balance sheet policy. A 50bps hike is expected at the meeting next week with explicit guidance from ECB.





S&P 500















*Data as of market close. 5-day change ending on Friday.



Morgan Stanley: Price-to-earnings (P/E) ratio typically increases during a recession as companies’ earnings would be lower. However, the current rise in P/E is not coming from the decline in earnings but the gains in price amid the rate hikes cycle. Investors should be cautious.

Standard Chartered: Against the rising recession risk in US and EU, Asia especially China’s equity market is expected to outperform in the coming 6-12 months. After the National People’s Congress, we expect the likelihood of the growth beating the 5% target to be high, given the support by the fiscal stimulus that could fuel the earnings recovery.

Fixed Income

Morgan Stanley: Cash is king amid the recent market environment as stock and bond markets are fighting the Fed’s policy. Stock valuation is at an extreme when measured by equity risk premium while credit spread is pricing in a calm market. Meanwhile, the risk-free 6-month treasury bill is offering the same yield as the riskier 60/40 stock/bond portfolio.

Goldman Sachs: Although higher rates will be realized eventually, it is still not a good time to add shorts amid the uncertain backdrop. With the unattractive compensation, it is also not recommended to add duration longs at the moment. Lower volatility in rates is expected in the medium term.


Goldman Sachs: Investors’ concerns shifted from recession risk to overheating after the strong NFP and CPI reports in January. However, the strong economic data and the recent speech from Powell led to an increase in the likelihood of a 50bps hike in March.

J.P. Morgan: We expect the economy will eventually slow despite the recent rally in yields. Inflation will drop and monetary policy will become looser. Adding more bonds to the portfolio is recommended at the current valuation with attractive income and diversification purposes.


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This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.


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