General view of First Republic Bank in Century City on March 17, 2023 in Century City, California.
AaronP/Bauer-Griffin | GC Images | Getty Images
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UBS’ planned takeover of Credit Suisse calmed the market slightly. Broader market conditions, however, still look unstable.
What you need to know today
- U.S. markets staged a relief rally as all major indexes made minor gains Monday. Asia-Pacific markets rose on Tuesday too. South Korea’s Kospi added 0.42% as the country’s producer price index for February increased 4.8% year on year, a slight decline from the previous month.
- Japan’s Prime Minister Fumio Kishida is on his way to Ukraine for a surprise visit to Ukraine’s President Volodymyr Zelenskyy, Japan’s Ministry of Foreign Affairs confirmed. Kishida’s unexpected trip overlaps with Chinese leader Xi Jinping’s official state visit to Ukraine’s nemesis, Russia and its leader Vladimir Putin.
The bottom line
The “Minsky moment,” named after the economist Hyman Minsky, is a sudden collapse of the market after a long period of aggressive speculation brought on by easy money. Markets might face a Minsky moment soon, warned Marko Kolanovic, JPMorgan Chase’s chief market strategist and co-head of global research.
Markets haven’t collapsed. Some bank stocks are in the doldrums, yes, but the SPDR S&P Regional Banking ETF, a fund of regional bank stocks, rose 1.11% on Monday. Major indexes were up yesterday too. The Dow Jones Industrial Average gained 1.2%, the S&P 500 added 0.89% and the Nasdaq Composite increased 0.39%.
But there are signs market instability is increasing. The banking crisis is causing regional banks — which account for around a third of all lending in the United States — to reduce their loans, said Eric Diton, president and managing director of The Wealth Alliance. In other words, the availability of money in the economy is slowing even without the Federal Reserve increasing interest rates.
Speaking of interest rates, analysts seem to think there’s no good path forward for the Fed. An interest rate hike “would be a mistake,” MKM Partners Chief Economist Michael Darda told CNBC. On the other hand, a pause would cause “panicked reactions by equity and bond investors,” according to Nationwide’s Mark Hackett. This suggests markets are already so jittery that whatever the Fed does — even if it’s nothing — it might cause instability to spread.
With that in mind, investors might want to heed Kolanovic’s warning that a Minsky moment could be on the horizon.
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