A series of events rattled U.S. stocks last week with the Dow Jones Industrial Average, S&P 500 and Nasdaq all down around 4.5%. Higher interest rates courtesy of the central bank is more likely after Fed Chairman Jerome Powell’s comments to lawmakers. On Tuesday, the chairman was quoted saying, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.” Stocks slumped but the real damage didn’t occur until Friday.

Silicon Valley Bank (SVB) collapsed on Friday in the second-largest bank failure in U.S. history. In 2008, Washington Mutual was the largest bank to fail. A run on SVB’s deposits in the amount of $42 billion on Thursday resulted in the Federal Deposit Insurance Corp. taking control of the startup-focused lender by Friday, creating a new bank. The new entity is called the Deposit Insurance National Bank of Santa Clara. All remaining deposits were transferred to the new bank. The FDIC insures accounts up to $250,000. For amounts over the threshold, depositors will get receivership certificates for the uninsured amounts. This means large depositors and businesses will not be able to access excess funds anytime soon.

SVB has a large bond portfolio which has been hit hard by the Fed’s interest rate increases. With the loss in value of that portfolio, concerns mounted over the bank’s capital ratio that is required by regulators. This in turn led to a run on the bank.

Before the SVB news hit, I was planning to discuss the trading range the market is in. The chart below from Standard & Poor’s shows the bear market decline through much of 2022 (shaded in purple). During this correction phase, the S&P 500 is trading between 3500 and 4200. After bottoming in October, the market was gradually making its climb upward. This was helped by a strong performance in January fueled by the belief that the Fed was finished with its aggressive interest rate increases. However, inflation continues to be a challenge and after the news about SVB came to light, stocks sold off. By Friday’s closing bell, the S&P 500 closed below its 50-day and 200-day moving average. The good news is, at 3861, the index is still above it’s low of about 3500.

If you have any questions, please contact me.

The Markets and Economy

• When mortgage rates peaked above 7% late last year, many believed the housing boom was over. Then, at the beginning of 2023, rates fell to just slightly above 6% fueling a rebound in home sales. Now, the fear of higher prices and a Fed still bent on reducing inflation has resulted in mortgage rates rising to around 6.65%. The effect is another round of cooling home sales.

• U.S. trade with the rest of the world grew in January, adding to signs the global economy started the year on a strong note.

• Higher interest rates are affecting the manufacturing sector. New orders for manufactured goods fell for the sixth consecutive month through February. In the U.S., manufacturing output is down 1.7% from its post-pandemic peak in May 2022.

• According to the Recording Industry of America, vinyl albums outsold CDs for the first time since 1987. Eight-track tapes were phased out in late 1982, about the same time CDs were first produced.

• Customer complaints have hit a record high. 74% of 1,000 consumers surveyed said they had experienced a product or service problem in the past year. That’s up from 66% in 2020 and 56% in 2017.

• For the first time in five years, Apartment List notes that rental rates fell in every major U.S. metropolitan area on a rolling six-month basis.

• China released their growth projections for 2023 and the figure is the lowest growth-target in a quarter-century. The world’s second-largest economy expects a GDP rate of 5%. The challenge officials in Beijing face is the amount of debt owed by local governments. Two-thirds of those are now in danger of breaching unofficial debt thresholds set my Chinese officials. That debt is officially estimated to be over $5 trillion. Analysts believe the actual figure to be much higher.

Offices in Chicago, Naples & Valparaiso.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results.

This newsletter was prepared by David M. Kover®. To unsubscribe from the Weekly Market Update please write us at 555 Eastport Centre Dr., Suite B, Valparaiso, IN 46383 or click this link:  Unsubscribe .

Note: All figures exclude reinvested dividends (if any). Sources: Bloomberg, Dorsey Wright & Associates, Inc. and The Wall Street Journal. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Securities offered through Triad Advisors LLC, member FINRA/SIPC. Triad is separately owned and other entities and/or marketing names, products or services referenced here are independent of Triad Advisors LLC.

Investment advice offered through One Digital Investment Advisors, LLC, an SEC-registered investment adviser. One Digital Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors LLC.