Bank Chaos Tests Traders’ Nerves and Rewards Those Doing Nothing

• Stocks holding up well after the collapse of several lenders

• Sticking to bonds amid extreme Treasury turmoil reaps profits

“The New York Stock Exchange in New York, on March 20.

Bloomberg Article Share: Traders

March 24, 2023 at 1:16 PM PDT

The plot twists in markets have lately been riveting. The urge to react has been intense. Doing so has mostly been a mistake. It’s still early, and things can get fluid when financial stress is afoot. But amid warnings of a banking crisis, a credit-fomented recession, pivoting central banks and stagflation, the best strategy so far — particularly in stocks — has been to sit still. The S&P 500 just capped its second straight up week, and while Treasuries have dealt body blows to short sellers, holding on through the worst volatility in four decades would’ve reaped sizable profits. Closing your ears to cacophony is standard investment advice that is often borne out. “Panicking never pays,” says April LaRusse, head of investment specialists at Insight Investments. “The smartest thing to do when you have a lot of uncertainty is to sit back and gather information and do your analysis and not jump trying to make big changes.” Heeding it now requires near-heroic composure. In a span of weeks, the dominant market theme has shifted from a “no landing” scenario where growth persists at the same time central banks push restrictive policy for longer, to everything from banking chaos to a recession to some type of Fed-fueled renaissance in technology shares. “There are decades where nothing happens; and there are weeks where decades happen,” Marko Kolanovic, chief global markets strategist at JPMorgan Chase & Co., wrote in a note. For now, bulls are enjoying the equity resilience, emboldened by hopes that the Federal Reserve will soon pause its aggressive inflation-fighting campaign and regulators including Treasury Secretary Janet Yellen can contain any financial fallout. The S&P 500 added 1.4% over five days, almost erasing its entire loss from the day before the plunge in regional banks two weeks ago. The Nasdaq 100 climbed for a third week in four, sitting about 5% above its pre-crisis level. Bears are quick to note: the same thing happened in 2008, when the Lehman Brothers collapse incited extreme turbulence, but stock benchmarks still managed to end the ensuing week virtually flat. At present, stocks remain closer to their lows than their highs of last year, when a 25% plunge in the S&P 500 sent a clear recessionary signal — a lot of pain is priced in. But that was true when the worst leg of the last crisis kicked in as well.