Will the Banking Crisis Ripple Your Way?

Will the Banking Crisis Ripple Your Way?

Will the Banking Crisis Ripple Your Way?

What We’re Watching This Week

  • Consumer confidence inches up. According to a closely watched survey of consumer confidence, Americans are feeling a bit more upbeat about the direction of the economy—largely as a result of the robust job market. Higher consumer optimism has historically led to increased spending on goods and services, which could create a gentle tailwind for some companies and their stock prices.
  • Housing bounces back. Is this the end of the housing slump? Data shows pending home sales increased for the third straight month in February. Lower home prices have helped—nationwide, prices fell for seven consecutive months through January. This, along with the recent decline in mortgage rates, is good news for house hunters who’ve seen house values go down as higher interest rates put a chill on the housing sector. The supply of existing homes for sale remains tight, however, which might set a floor on how much lower prices could go in certain markets.
  • Banking crisis ripples. In the wake of the mini banking crisis, questions remain about lending standards and how the situation will influence inflation. Partner and Wealth Advisor Steve Johnson talks through the aftermath of the Silicon Valley Bank (SVB) collapse and what it means for you. Click here to watch now and read below for more, including how insurance companies may (or may not) be rocked by the wake.  

Are Insurance Companies at Risk?

It’s natural to wonder whether the banking crisis could spill over into other segments of the financial sector, and we’ve fielded questions from clients about insurance companies and annuity providers.

The short answer is that the banking crisis appears to be largely contained, and we’re not seeing signs that liquidity will become an issue beyond the initial small subset of specialized regional banks and some of their partners.

Insurance companies—because they are not structured like retail lenders—are less susceptible to the risks that we saw with SVB and its ilk (like a bank run by depositors). Even with tighter credit conditions and an economic slowdown, insurers are more insulated due to lower liquidity needs and a relatively favorable interest-rate backdrop now versus the past decade.

For their part, annuities are structurally different than insurers—but the takeaway is the same. The risk of default on your annuities is low, especially with highly rated insurance companies, and we are not seeing similar signs of cracks that could lead to collapse in this area.

It’s true that some insurance stocks have been dragged down a bit by sympathy selling, but not as much as bank stocks. And our active stock portfolios are underweight financials, which lowers your exposure to this recent event and the fallout.

As always, your advisor is available to talk about what’s going on in banking and how market developments may affect your financial goals.

Looking Ahead

Tomorrow, we’ll get a look at the personal consumption expenditures price index (PCE), the Fed’s preferred measure of inflation. Next week brings key reads on manufacturing, construction spending, factory orders, job openings, the service sector, consumer credit and the job market, including the March unemployment rate. We’ll be here to break it all down for you.

Remember to visit www.adviserinvestments.com for our timely and ongoing wealth management commentary.

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Please note: This update was prepared on Thursday, March 30, 2023, prior to the market’s close.

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