Stocks tumbled last week as tech-focused lender Silicon Valley Bank (SVB) shut down following losses in its bond portfolio, making it the biggest bank failure since the global financial crisis and sending shockwaves through the banking sector.1 Combined with more hawkish comments from Fed Chairman Powell and mixed labor data, financial markets succumbed to downward pressure.

Equity markets declined significantly, posting their worst weekly performance since June 2022. The Dow fell 4.35%, the S&P dropped 4.51%, while the Nasdaq lost 4.68%. Meanwhile, there was a sharp rise in the VIX, the CBOE’s volatility index, which spiked 34% for the week.  The Bloomberg US Aggregate Bond Index ended the week higher by 1.17%.2

Silicon Valley Bank’s collapse was caused by a severe asset/liability mismatch. SVB took in tens of billions of dollars in deposits (liabilities) from its venture capital clients and then, confident that rates would stay steady, invested that cash into longer-term bonds (assets) – primarily seemingly “safe” assets, like US Treasuries and government-backed mortgage securities. These securities carry a low risk of default, but they pay fixed interest rates for many years. That wouldn’t necessarily be a problem unless the bank suddenly needed to sell the securities. But because market interest rates have moved so much higher, those securities were suddenly worth less on the open market than they were valued on the bank’s books. As a result, they could only be sold at a loss when required to meet depositors’ redemptions, resulting in a liquidity crisis and collapse at SVB.

Within equities, regional and money-center banks were hit hard on concerns over possible systemic risk relating to the value of the bond portfolios on bank balance sheets. The SPDR S&P Regional Banking ETF declined nearly 4.4% on Friday. For the week, the regional bank fund lost about 16%, its worst week since March 2020 as the pandemic hit.3

Earlier in the week, in Fed Chairman Powell’s comments before the Senate Banking Committee, he acknowledged U.S. economic momentum in his Senate testimony, saying “the ultimate level of interest rates is likely to be higher than previously anticipated”.4  While he emphasized that no decision has been made regarding the March meeting, traders who had been hoping for no rate hike in March are now bracing for one following a batch of strong economic data in recent weeks.

The turmoil among bank stocks overshadowed the February jobs report, which gave some hints that inflation could be slowing. Payrolls increased by 311,000, more than the expected 225,000, but investors focused on the smaller-than-expected gain in wages: average hourly earnings climbed 4.6% from a year ago, below the anticipated 4.8%. The monthly increase of 0.2% also was below the 0.4% estimate5, which could cause the Federal Reserve to rethink its more aggressive stance on rate hikes.

With the next Fed meeting scheduled for Mar 22, traders are pricing in a roughly 83% chance of a 25bps increase, according to the CME Group’s FedWatch tool.6


Thank you for your confidence in our team,

Asset Management Department

Sequoia Financial Group



  2. Bloomberg


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Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.

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