Market Call

Bond investors are having fun again. The 10-year US Treasury bond yield peaked last year at 4.25% on October 24. It was down to 3.38% on Friday. Most of this decline occurred since the start of the current banking crisis on March 9 (chart). Bond investors have been waiting for something to break in the financial system since last summer when the yield curve inverted. They are betting that something broke when SVB imploded. Overnight, this event raised fears of a widespread banking crisis, credit crunch, recession, and even deflation.

Nevertheless, the S&P 500 is still up for the year to date, by 3.4%, notwithstanding the freefall in the S&P 500 Financials caused by the banking crisis. It’s just above its 200-day moving average and just below its 50-day moving average. Eight of the 11 S&P 500 sectors are down ytd, led by an 11.1% drop in Energy and a 9.4% decline in Financials, while only three are up ytd, namely Communication Services (18.4%), Information Technology (17.5), and Consumer Discretionary (9.6) (Table). The three outperforming sectors are doing well because they include the MegaCap-8 stocks, which as a group are up 26.5% ytd based on their collective market cap (chart).