What’s Driving the Markets?

Volatility was the word of the week in the markets.

“There has been significant volatility within the financial services industry and more so in the banking industry this week,” shared Regions Chief Investment Officer Alan McKnight as he opened the Weekly Market Update Call held on Friday, May 5. “The First Republic announcement and subsequent agreement with JPMorgan weighed heavily on the regional banks, as rescue talks had dragged on for weeks.”

He went on the share that this move put a floor on some of the risk.

“In recent months following SVB, it stemmed the tide a bit, then came the news on PacWest and Western Alliance, both which were under significant pressure this week,” McKnight shared. “Sellers and short sellers more specifically have put pressure on these stocks.”

McKnight, who made the media rounds last week, appeared on CNBC’s “Worldwide Exchange” with fellow guest Degas Wright, CEO and CIO of Decatur Capital, ahead of the Federal Open Market Committee (FOMC) Meeting on Wednesday, May 3.

“Given the limited visibility from an economic perspective and the continued market volatility, we’ve remained neutral as it relates to stocks versus bonds,” suggested McKnight, who reiterated the importance of balance in a portfolio.

Debt Ceiling Talks Impacting the Front-End Of The Treasury Yield Curve

Brandon Thurber, Regions Chief Market Strategist chimed in on the state of the fixed income market on Friday’s call.

“Really what is most surprising is movement on the short end of the Treasury curve,” said Thurber.  “Yellen stated she expects Treasury could run out of money potentially as early as June 1, 2023. Money market funds are requiring a much higher yield on one-month T-bills to compensate for a possible technical default on those bonds. We are seeing a massive move higher on front end of Treasury curve and expect volatility to remain elevated throughout May.”

Thurber noted that debt ceiling talks will ramp up next week.

“Tone will go a long way in bearing out what yields will do over the next four to six weeks.”

“Getting too caught up on the noise can lead to bad choices. Keeping calm, you’ll be better served as an investor.”
Alan McKnight, Regions Chief Investment Officer

What’s Next?

“There was a lot to unpack over the past few weeks from an economic and market perspective,” McKnight said as he recalled a recent speech by Carey Lohrenz on how to deal with stress and the inevitability of that. “She said, one, focus on what you can control, and two, calm is contagious.

McKnight noted the relevancy of that advice as it pertains to the markets.

“Getting too caught up on the noise can lead to bad choices. Keeping calm, you’ll be better served as an investor,” shared McKnight. “Not taking action for action’s sake, because historically that approach doesn’t benefit portfolios in the long run.”

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The commentary expressed during this call and reported in this article are statements of the Speaker(s) opinion, are intended only for informational purposes, and are not formal or binding opinions of Regions Bank, its parent company Regions Financial Corporation, or its subsidiaries. This content is solely for information and educational purposes, and nothing contained in this presentation constitutes an offer or solicitation to purchase any security, the recommendation of any particular security or strategy or a complete analysis of any security, company or industry or constitutes tax, accounting or legal advice. Information is based on sources believed to be reliable but is not guaranteed as to accuracy. Commentary and opinions provided reflect the judgment of the Speaker(s) as of the date of this presentation and are subject to change without notice. Certain sections of this presentation may contain forward-looking statements based upon the reasonable expectations, estimates, projections and assumptions of the Speaker(s), but forward-looking statements are not guarantees of future performance and involve risks and uncertainties, which are difficult to predict. Investment ideas and strategies presented may not be suitable for all investors. No responsibility or liability is assumed for any loss that may directly or indirectly result from use of information, commentary or opinions.