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Market Insider: March 21, 2023

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U.S. Money Reserve

Mar 21, 2023

The Dow Jones Industrial Average shed 575 points on March 7, 2023, after Federal Reserve Chairman Jerome Powell announced that the central bank was likely to “aggressively” hike interest rates. The following week, stocks continued to trend downward as the collapse of Silicon Valley Bank (SVB) led to a drop in financial stocks. Stocks may be poised for another year of negative performance.

Stocks have already seen low or negative performance in 2023.

The negative performance on March 7 brought the Dow into negative territory for 2023, after weeks of mixed performance. A large sell-off of banking stocks the following week continued this movement. This year’s downward momentum builds off similar trends from last year.

Stocks struggled in 2022, with multiple indices experiencing large dips: The S&P 500 dropped 19.4%, the Dow Jones Industrial Average fell 8.8%, and the Nasdaq tumbled 33.1%. CNBC reported this as the worst performance for all three indices since 2008.

As a result of this stock market performance, many consumer portfolios have been impacted. According to Vanguard, the average 401(k) balance shrank by 20% in 2022.

Red downward-trending stock data

Multiple factors could contribute to further dips in the stock market.

During testimony to Congress, Federal Reserve Chairman Jerome Powell indicated that the central bank will be looking to further tighten monetary policy with larger rate hikes. In a March 9, 2023, note to clients, Goldman Sachs economists said that this could lead to a steeper sell-off of stocks. Despite the effects of the SVB closure, the Federal Reserve is still expected to raise interest rates.

Stock valuations may also be inflated, according to analysts at Morgan Stanley. In a note published on March 6, 2023, the analysts point to price-to-earnings multiples as being “premature” compared to market activity.

On March 13, 2023, Evercore ISI’s senior managing director Julian Emanuel predicted that the fallout of the SVB failure could approach market lows from October 2022. Emanuel compared the current banking situation to the Savings and Loan Crisis of 1987.

Close-up of Federal Reserve stamp on U.S. currency

Experts predict stocks may continue to fall—even crash.

Prior to the collapse of SVB and the resulting market volatility, “The Bear Traps Report” founder Larry McDonald predicted that the stock market would crash in 60 days during a March 8, 2023, appearance on Fox Business. McDonald, who wrote a best-selling book on the Lehman Brothers collapse, said, “[The Federal Reserve is] playing catch up, and while they were doing quantitative easing in 2021, inflation started to rage, and now they’re trying to catch up…. Our 21 Lehman systemic risk indicators that look at equity and credit point to one of the highest probabilities of a crash in the stock market looking out 60 days.”

Analysts at J.P. Morgan predict that the Federal Reserve’s monetary policies will lead the S&P 500 to fall from near 3,900 points to 3,200 points by mid-2023, a 20% decline. In a note published on March 7, 2023, the analysts wrote, “A break below 3,888–3,971 [points] would not only validate that assessment in our view, but we suspect it [could] trigger an acceleration to the downside.”

Many analysts expect stocks to continue experiencing volatility through 2023.

Read U.S. Money Reserve’s “Market Insider” each week for more economic insights. Nothing herein should be considered as portfolio or retirement advice as U.S. Money Reserve (“USMR”) cannot and does not offer financial advice. Clients should consult a financial advisor for specific advice. This commentary is provided by USMR for informational purposes only and is provided on an “as is” basis without any warranty of any kind, whether express or implied. Your use of the information provided in this commentary is entirely at your own risk. In no event will USMR be held liable for any indirect, special, incidental, or consequential damages arising from the use of information contained in this commentary.

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