Volatile Markets: Navigating the U.S. Federal Reserve, Credit Suisse & More
The financial markets have recently been volatile due to uncertainty surrounding the U.S. Federal Reserve's upcoming meeting. The 10-year Treasury yield decreased to 3.41%, and the two-year Treasury yield dropped to 3.84%, resulting in a spread between them of -43 basis points. The 10-year yield further dived 30 basis points to 3.395%, with huge swings each day, and the two-year yield crashed 74 basis points to 3.85%, the biggest weekly drop since 1987.
The market is now expecting that the Fed is likely to not raise rates this month and has indicated multiple rate cuts may be issued, including a 50-point move in June. Meanwhile, President Biden has assured Americans that the nation's banking system is safe and that “no losses will be borne by the taxpayer”.
Credit Suisse's stock took a major hit, with a drop of over 20%, after its biggest investor declined to provide additional capital. The Cboe Volatility Index, also known as VIX, is a measure of the equity market's expectation of volatility based on S&P 500 index call and put options.
At the same time, the CME FedWatch Tool now expects a 83% chance of a 25-basis-point rate hike at the March meeting. The Dow Industrial Average plummeted by 500 points, representing a 1.3% decrease; the S&P 500 and Nasdaq each dropped by 1.5%.
On Thursday, stocks experienced a dramatic surge in response to the announcement that JPMorgan and Bank of America, among other major banks, were going to provide financial support to First Republic, essentially saving the troubled bank. Meanwhile, the European Central Bank announced a 50 basis point rate hike at its latest meeting.
Overall, the market is showing growing pessimism about economic growth that hasn’t morphed into panic about systemic collapse yet. It is important to stay informed and make wise decisions when investing during times of uncertainty.
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