A Multi-Asset Perspective on Recent Bank Turmoil: Don’t Lose Sight of the Macro Story

In this blog, we explore the implications of recent bank turmoil on our multi-asset views. For a more detailed background on what transpired at Silicon Valley Bank (SVB) and the actions that the Federal Reserve (Fed) took to mitigate the fallout, we recommend reading this piece.

Our key takeaways are as follows:

  • The recent events at SVB and other global banks occurred due to a mixture of idiosyncratic problems at these institutions as well as macroeconomic forces that are a cause for broader concern.
  • Our macroeconomic outlook remains bearish as we expect global growth to further weaken and policy to remain tight.
  • We believe that valuations of risk assets are broadly expensive given our bearish macro outlook, which doesn’t appear to be priced in.

What happened? Don’t let the micro details hide the macro story

Idiosyncratic factors certainly played a role in SVB’s failure and the recent turmoil we’re seeing in US regional banks as well as overseas at Credit Suisse (CS). SVB had a glut of corporate customers that were tech startups (that have been drawing down their deposits), as well as a mismanaged asset and liability mix, particularly in an environment of rising interest rates (fixed-rate assets and floating-rate liabilities). CS has been engulfed in scandal over the last few months and has seen outflows and a steady decline in assets under management since this past October. However, we believe that even many of the micro stories of the last two weeks are not fully isolated from one another.

Fiscal and monetary stimulus following the onset of the COVID-19 pandemic in the United States and abroad spurred a hot global economy. With low financing costs, animal spirits were unleashed—booming private markets, unprofitable growth startups, digital assets and Reddit-fueled stocks like AMC and Gamestop saw their valuations soar. Animal spirits help produce strong growth, but they can also produce excesses in the economy that are concealed until policy tightens.