An earlier flight-to-safety bid waned, with all 11 groups in the S&P 500 gaining. A gauge of US lenders climbed after last week's 15 per cent rout. First Republic Bank plunged 47 per cent to a record low, missing out on a rebound by its regional peers led by New York Community Bancorp. UBS Group AG rose as investors focused on the upside of its Credit Suisse Group AG takeover.
“Monday's session was relatively tame versus what we anticipate will be a week of elevated realized volatility,” said Ian Lyngen at BMO Capital Markets. “Conviction is scarce in the current environment and this observation applies not only to the Fed, but also to the evolution of the banking sector stress.”
“This was a very strong statement that suggests any banking sector issues won't derail the tightening cycle,” he noted. “We think this view is held by pretty much every central bank, including the Fed, which supports our call for a 25 bp hike this week.”Morgan Stanley's Michael Wilson said the stress in the banking system marks what's likely to be the beginning of a painful and “vicious” end to the bear market in US stocks.
The term, named for the late American economist Hyman Minsky, refers to the end of an economic boom that has encouraged investors to take on so much risk that lending exceeds what borrowers can repay. At that point, any destabilizing event may force investors to sell assets for cash to repay their loans, sparking a market meltdown.
In the likely volatile period ahead, high-quality, defensive assets should be sought out, while diversification will be increasingly important, said Seema Shah at Principal Asset Management. Keith Lerner at Truist Wealth, says he also prefers staying defensively positioned even as the market appears to be fairly resilient.
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