Things are getting weird in the markets

Illustration: Eniola Odetunde/Axios

A rush to safety in the bond market. A modest rise in tech stocks. And still simmering worries about banks. Things got a little weird on Monday.

Driving the news: The major stock indexes were somewhat resilient despite massive jitters about the health of many large regional banks following the collapse of Silicon Valley Bank and Signature Bank over the past few days.

  • The S&P 500 fell 0.2% – after being in positive territory for most of the day. The technology-heavy Nasdaq composite rose 0.5 per cent.

But: Regional bank shares fell, despite steps taken by the government on Sunday evening to strengthen the financial system.

  • The most notable drop was First Republic Bank, a California lender that, like SVB, has a large number of deposits that are above the FDIC’s $250,000 limit. It coincided with more than 60%.

What they say: “The market remains very uncertain and uncomfortable with the funding profile of many U.S. banks,” said Terry McEvoy, an analyst who covers regional banks for brokerage Stephens, based in Little Rock, Ark.

💭 Our thought bubble: At first glance, it can be hard to wrap your head around the idea of ​​a simmering banking crisis with a stock market hanging in there. But there is some logic to it.

  • Markets seem to bet that the flare-up of a banking crisis is likely to mark the beginning of the end of the Fed’s recent run of rate hikes.
  • That picture is backed up by prices from the Fed Funds futures market, where investors have cut the odds of a half percentage point rate hike at the Fed’s next meeting from 80% to about zero over the past few days.

What we see: Fresh inflation data will be out on Tuesday morning with the release of the consumer price index for February.

  • The widely watched inflation gauge could further complicate the situation for Fed Chairman Jerome Powell as he tries to balance the still-unfinished battle against inflation against the risk of more rate hikes pushing the banking system closer to the brink.

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