Market confidence remains fragile after a sharp bout of financial sector stress.


  • Acute banking sector stress—punctuated by the failure of Silicon Valley Bank on 10 March—sparked wider concerns over solvency, liquidity, and profitability.
  • Since then, US Treasury yields have fallen sharply and bond futures are pricing several Fed rate cuts, suggesting a recession is now expected as soon as the summer.
  • Minneapolis Fed President Neel Kashkari warned on 26 March that banking strains could bring the US closer to a recession.

But fears of a systemic crisis or credit crunch look overdone, in our view.


  • US and European policymakers have acted swiftly to contain risks in the global banking sector, with coordinated liquidity measures and quick bank rescue deals.
  • Recent Fed data on bank deposits and the use of its liquidity facilities suggest the worst may be past.
  • The Fed hiked rates by 25bps in March, indicating less immediate concern with bank stress compared to persistent inflation.

Investors do need to consider diverging outlooks for equities, bonds, and other asset classes


  • With all-in yields still high, we raise bonds to most preferred and suggest investors lock in attractive yields now in select high grade, investment grade, and EM bonds.
  • We downgraded equities this month to least preferred, with global stocks likely to deliver limited returns and high volatility over the remainder of the year.
  • We moved the USD to least preferred, and instead favor the Aussie dollar, Swiss franc, euro, British pound, Japanese yen, and gold.

Did you know?


  • Following the failure of Silicon Valley Bank in March, the US Treasury, Federal Deposit Insurance Corporation, and the Federal Reserve announced they would guarantee all depositors’ funds and restore access.
  • In an attempt to prevent wider contagion, the Fed announced a new Bank Term Funding Program (BTFP), offering banks the possibility of taking loans of up to one year against Treasuries and other collateral.
  • Investors tempted to sit on the sidelines during periods of market volatility should know that this often results in being under-invested when a new sustainable bull market begins.
  • Following regulator-led talks, UBS on 19 March announced the acquisition of Credit Suisse for a total consideration of CHF 3 billion.

Investment view


We raised bonds to most preferred and lowered equities to least preferred. Investors should lock in yield in IG, HG, and EM bonds, and consider more selective equity exposure in EM (like China) or via sectors like consumer staples, industrials, and utilities. We expect dollar weakness and suggest investors consider real assets like commodities and infrastructure, or alternatives like hedge funds and private markets.


Main contributors - Jon Gordon, Vincent Heaney


Content is a product of the Chief Investment Office (CIO).


Original report - How do I position amid bank stress?, 27 March 2023.