I’m sure you have seen/read/heard about the recent events in the banking sector. Over the last several days, a number of banks have collapsed and been taken over by the FDIC (Federal Deposit Insurance Corporation).
These bank failures caused significant concern about the banking sector in general.
The link below is a detailed explanation of what happened to these bank from Kestra Investment Management. My own analysis of the situation is that each of the failed banks were somewhat unique situations and that the overall banking sector remains safe and secure. . Over the weekend, the Federal Reserve in conjunction with the Treasury Department and the FDIC implemented steps to make sure all depositors at the failed banks were covered 100%. This seems to have mitigated the risk of the situation spreading to other banks.
The reaction in the financial markets was that stocks, especially bank stocks, declined while bonds, especially government bonds, gained in value.
Given the recent downtrend in stocks and breaking below the 3,940 level on the S&P 500 that I highlighted in my March Outlook, we lowered risk in our portfolios by raising some cash and shifting some equity exposure to protect downside risk. We did this because right now we see the potential for further downside being greater than the potential for reversing to the upside. If we are wrong, we will miss out on a few percentage points but that is a price worth paying to mitigate further declines in portfolios.
I hope this note is helpful. Please let me know if you have any questions.
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