25th March 2023 – 31th March 2023 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 4,109.31 | 12,221.91 | 18.70 | 33,274.15 | 2,253.36 | 15,374.91 |
| 3.48% | 3.37% | -13.98% | 3.22% | 3.65% | 4.18% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 17,359.75 | $1,987.00 | $24.24 | $79.93 | 82.18 | 89.11 |
| 1.66% | 0.30% | 3.72% | 7.13% | -0.19% | 0.56% |
Source: MarketWatch
Hello Saturday,
This week, the Biden administration pushes for tighter banking regulations, another train derails in the US, and India’s Ministry of Defence signs massive contracts to upgrade capabilities.
- The Biden administration proposes stronger regulatory measures for mid-sized banks with assets between $100 billion and $200 billion to help reduce risk.
- India’s Ministry of Defence signs multiple deals worth over ₹36,400 crore with several state-owned companies, upgrading defence capabilities and giving a major boost to Make in India.
- A train operated by BNSF Railway carrying ethanol derails in a small town in Minnesota, forcing evacuation; safety regulations in the rail industry may tighten.
- The US economy remains strong despite major layoffs, slowing consumer spending, high inflation, and rising interest rates; the recession in 2023 is likely to be mild.
- Bitcoin is up by over 70% this year, beating stocks and gold. Fears of a global banking crisis and the expectation of a slower pace of interest rate hikes have aided the rebound.
Taking stock | Size does matter | Home advantage | Trainwreck | $till going $trong | Bitcoin ka-ching! | Invest wisely
Taking stock
Wall Street wrapped up a quarter that was volatile yet one of the best since 2020 this Friday. US stocks got a boost on Friday after inflation data came in softer-than-expected — the core Personal Consumption Expenditures Index rose 0.3% in February, slightly lower than estimates. For the week, the S&P 500 rose 3.48%, the Dow gained 3.22%, and Nasdaq climbed 3.37%.
Size does matter
The Biden administration called for tighter regulation for mid-sized banks this Thursday, including regular stress tests, formulation of living wills, and an increase in liquid assets and capital. After the collapse of Silicon Valley Bank and Signature Bank shook the banking system earlier this month, the White House is urging banking authorities to tighten regulation for banks with assets between $100 billion and $200 billion.
The Federal Reserve is already rethinking some of its rules concerning mid-sized banks, and this push from the White House could help add momentum. In 2018, the threshold at which banks are considered a systemic risk was increased from $50 billion to $250 billion when Republicans pushed for the easing of banking regulations. As of last year, Silicon Valley Bank had $209 billion in assets, dangerously close to that threshold.
The bigger banks are already subject to strict oversight to maintain the stability of the banking system and the economy. And now, requirements such as annual stress tests and submission of living wills or a detailed plan of how the bank will be liquidated in the event of insolvency will most likely be extended to mid-sized banks too.
Home advantage
This Thursday, India’s Ministry of Defence (MoD) signed multiple deals worth over ₹36,400 crore with several state-owned companies. Public Sector Undertakings (PSUs) such as Bharat Dynamics, Bharat Electronics, Cochin Shipyard, Goa Shipyard, Garden Reach, and Shipbuilders & Engineers will benefit from these contracts. As a result, shares of these defence companies rose by over 6% in intra-day trade on Friday.
These contracts give a massive boost to not only the defence sector but also to the Modi government’s ‘Atmanirbhar Bharat’ effort, a part of ‘Make in India’. One of the biggest achievements of ‘Make in India’, since it was launched in 2014, has been that the Foreign Direct Investment (FDI) has almost doubled — from $45.15 billion in 2014-2015 to $83.6 billion in 2021-2022. And with the Atmanirbhar Bharat Abhiyaan, the government plans on making India a self-reliant, $5 trillion economy by 2025.
Trainwreck
Thursday morning, a train operated by BNSF Railway derailed in Raymond, Minnesota. Its highly flammable ethanol shipment ended up igniting multiple rail cars. This led to the mandatory evacuation of the 800 citizens of the small town. This derailment comes less than two months after the train derailment in East Palestine, Ohio — that train, too, was carrying hazardous chemicals and was run by Norfolk Southern.
Multiple such train derailments in the US over the past few months could bring about new regulations. While this is a needed step for safety in the rail industry and has been a high-profile issue since the Ohio derailment, it could negatively impact the stocks of companies in the logistics sector. The existing safety norms, which are quite loose, allow operators to cut costs, a benefit they may soon lose.
$till going $trong
The US economy is still quite strong despite the layoffs by major companies, stock market volatility, and banks collapsing. While the jobless claims rose by 7,000 last week, overall the claims remain historically low, and the labour market remains tight.
Source: The Wall Street Journal
The final estimate for 2022 fourth-quarter GDP came out this week, showing that the US economy grew at 2.6% in the last quarter. This is lower than the earlier estimate of 2.9%, mostly because of slowing consumer spending. Contractionary monetary policy, which involves interest rate hikes to bring down record-high inflation, naturally leads to slower economic growth. And while a recession is expected this year, it is likely to be mild.
As for the US dollar, it continues to remain strong. The US Dollar Index reached 20-year highs in 2022 and, despite an uncertain outlook in 2023, is up 6.6% from a year ago. This uptrend in the value of the dollar is always seen when there is a rising interest rate environment. This is because when the US interest rates rise, global investors want to benefit from higher yields, resulting in an increase in demand for the US dollar.
Bitcoin ka-ching!
Despite the collapse of several crypto-focused banks and companies, Bitcoin is up about 70% this year. As of the first quarter of 2023, Bitcoin is beating major stock indices and commodities like gold. When the year began, Bitcoin was trading a little over $16,500 and has now crossed the $28,000 mark, so the question is — is Bitcoin back to being a lucrative investment?
The collapse of Silicon Valley Bank and Signature Bank, along with fears of a global banking crisis since the fall of Credit Suisse, has helped this cryptocurrency rally. This is primarily because such banking failures have made it difficult for people to ignore the need and benefits of decentralised currency. Another reason for Bitcoin rising again is the interest rate outlook. The expectation that the Fed could slow down the interest rate hike pace helps risk assets like Bitcoin.
Invest wisely
No matter how sharp the market fluctuations are, many securities tend to recover over time, just like Bitcoin has since 2023 started. This applies to stocks and most other asset classes as well. Hence, it’s essential not to lose sight of your long-term investment goals in the face of short-term volatility and continue investing. So, download the Appreciate app to gain access to a range of high-performing US stocks and exchange-traded funds and stay on track with your investment journey!
Warm regards,
Another week
in the markets
