Another Bank Seizure While Markets Yawn
May 1, 2023
First Republic Bank was seized by the Fed and taken over by JP Morgan this past weekend.
JP Morgan CEO Jamie Dimon made a statement stating, “this part of the cycle is behind us.” While Dimon’s remarks were meant to sooth, and the market is up today, it is hard to understand what these comforting words mean precisely. What is behind us? Banks being seized by the Fed? JP Morgan acquiring a failed bank? It’s quite murky. Nonetheless, markets are moving on to digesting the news of the week and stocks are moving higher.
Over 3,000 public traded companies will report this week. As such, this is a massive week at the end of which we will have a much clearer picture of the going forward expectations for corporate earnings. We are amid a period of earnings deceleration for sure. What is not clear is whether this slowdown will lead to a full-blown economic recession.
While there are some long standing indicators flashing a recessionary alarm (chief among them the yield curve), this has yet to materialize. Annualized GDP for the quarter came in at a tepid 1.1% but was still positive. Thus, the potential for a “soft landing” in response to the Fed’s interest rate campaign is still a possibility. As such, we are still in a trading range on stock prices with no clear idea about any trends. Its all “up in the air.”
This backdrop of heightened uncertainty requires “steady hands on the tiller” when it comes to investment management. This is no time for quick moves and moving large sums. Rather the strategy of taking things day-by-day and making small moves is fitting at most times, but more so today than at anytime in recent memory. The tried-and-true components of modern portfolio theory that involve broad diversification and holding for the long term are more important than ever.
We at WealthPlan are firmly in the modern portfolio theory camp on this one. As a wise old friend once said of diversification strategies: “diversification is admitting your ignorance and prospering.” We at WealthPlan accept this state of ambiguity and seek to prudently manage assets (i.e., no big moves) as we wait for a clearer picture to emerge. In the meantime, we hold a little bit of a lot of things in our portfolios, which is the right approach to heightened uncertainty. We thank you for your business.
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