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If history repeats itself, there’s a bad omen in how financial markets have reacted to the collapse of SVB Financial.
The S&P 500
SPX,
has gained 7% and the Nasdaq Composite
COMP,
has gained 10% in the two months after the collapse of SVB. When Bear Stearns collapsed in March 2008, having to get rescued by JPMorgan Chase, the S&P 500 rose 11% and the Nasdaq jumped 15% in the next two months.
“Just as then credit & tech lead a 10-week rally which reversed in Q3, but unlike then defensives outperforming cyclicals as REITs, banks, energy, small caps currently tattooed with ‘hard landing,’” says BofA strategists led by Michael Hartnett.
Of course, things got much worse in 2008 — the S&P 500 skidded 38% that year.
A recession now, the BofA strategists say, would crack credit and tech stocks, just as in 2008, but negative payrolls would likely be a buy catalyst for cyclical stocks this year.
They drew on the U.K. experience to show why financial markets, apart from some maneuvering in short-term yields and credit-default swap contracts, are unbothered by debt-ceiling wrangling.
“If political kabuki ends in risk-off drama, then Fed does QE (like Bank of England last October),” he said. “This [is] why other assets classes not worried.”
The Bank of England stepped in to buy longer-dated government bonds after turmoil in financial markets and pension funds in particular following a budget plan that has since been reversed.
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