Alfred Lam, CFA, Senior Vice-President, and Head of Multi-Assets CI Global Asset Management
Investors began the year with an extremely optimistic belief that an economic soft landing would be achieved in the U.S. with cooling inflation and that the U.S. Federal Reserve was very close to finished hiking rates. The S&P 500 Index rose to 4180 during the quarter (see chart above). This optimistic expectation was later challenged by continued strength in the labour market that is expected to drive higher input costs and inflation. Markets quickly weakened and fell substantially when bank run news hit the wire in March. It was obvious the Silicon Valley Bank and the Signature Bank would not survive on their own and a few others were also at risk of failing. The Federal Reserve and U.S. Treasury came to the rescue quickly by assuring deposits are safe and by announcing a new program, the Bank Term Funding Program (BTFP), to allow banks to borrow from the Fed using their holdings of government bonds as collateral. The crisis ended quickly, and the equity markets resumed rising on the expectation that the Federal Reserve has to put financial stability ahead of fighting inflation, hence lower terminal interest rates and possibly cuts by end of year.
Read the rest of Alfred’s commentary by downloading: April Portfolio Construction