Walker Crips' Market Commentary

As European and US indices turned lower last week, investors were left pondering: can multiple financial rescues and a government budget keep a hibernating bear at bay?Last autumn, UK pension funds that use liability driven investing as a core investment strategy were the first to experience a mismatch in assets and liabilities, necessitating a liquidity backstop. The Bank of England had to step in with a short-term quantitative easing program to prevent a crash in the gilt market and stabilise the UK pension sector.Fast forward from last year to the present day, and three US banks have failed, demonstrating that the banking sector is not immune to the harsh realities of quantitative tightening. The troubles these banks faced were not triggered by a disastrous mini budget but rather a fall in the value of crypto currency assets. Nonetheless, a mismatch in assets and liabilities has resulted once more albeit in a different sector. Each bank has had its own White Knight come along to the rescue in the form of a bid from a competitor or a ‘bailout’. Although the US Federal Reserve (“Fed”) has been careful not to use that word, all the while emphasising support is going directly to depositors - not to the banks...Stocks featured:Close Brothers, Credit Suisse, Direct Line, Prudential and UBSTo find out more about the investment management services offered by Walker Crips, please visit our website:https://www.walkercrips.co.uk/This podcast is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this podcast constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange.

It was always going to take a big news story to divert the attention of equity markets away from hanging on every word that Jerome Powell (Chair of the US Federal Reserve, "Fed") utters about inflation and the likely path of interest rates. The sudden collapse of Silicon Valley Bank ("SVB") proved to be just the story. To put it simply, the Fed's policy of aggressively raising interest rates has had the effect of pushing borrowing costs to a level above where many cash-hungry start-up companies can sustainably raise finance. At the same time, those very same high interest rates feed into (and have a negative effect on) the discounted cash flow valuations which are commonly used to value unprofitable start-up companies - the result being to effectively starve them of the opportunity to raise equity finance. So, choked of all forms of finance, their only option had been to draw upon cash reserves held with the likes of SVB. As cash calls gathered pace, SVB had to liquidate some of its "low risk" capital (i.e. US Treasuries) much earlier than it had expected it would need to. Due to the rate hiking over the past year, those “low risk” Treasuries were not worth nearly as much as they had been 12 months prior - and so SVB faced a cash shortfall, which it tried to plug via a hastily arranged equity fund-raising. If there is one thing guaranteed to cause panic amongst investors and savers alike, it is a bank that admits it cannot meet customer redemption requests...Stocks featured:Direct Line, Legal & General and Robert WaltersTo find out more about the investment management services offered by Walker Crips, please visit our website:https://www.walkercrips.co.uk/This podcast is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this podcast constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange.

In the US, the S&P 500 closed 1.9% higher for the week, regaining some of ground lost through February where it declined by 2.6%. There were a number of important economic reports in the week, however their mixed nature meant there was a lack of noteworthy catalysts for performance. The Institute for Supply Management's (ISM) manufacturing Purchasing Managers' Index (PMI) came in higher in February at 47.7 (previously 47.4) and was slightly ahead of median forecasts of 47.6. It does, however, remain in contraction territory, as levels below 50 indicate slowing activity. The ISM's services PMI fell slightly to 55.1 (previously 55.2), but came in above median forecasts of 54.3 and remains in modest expansion. The most surprising data point of the week was the 8.1% jump in pending home sales in January (previous month 1.1%), far ahead of median forecasts of 0.9%. Lawrence Yun, chief economist at the National Association of Realtors' attributed the jump to the dip in mortgage rates over the new year and indicated that "home sales activity looks to be bottoming out in the first quarter."Stocks featured:Aston Martin Lagonda, Persimmon and RightmoveTo find out more about the investment management services offered by Walker Crips, please visit our website:https://www.walkercrips.co.uk/This podcast is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this podcast constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange.