May 11, 2023
Dear WEALTHTRACK Subscriber, When the Federal Reserve raises interest rates as aggressively and quickly as it has done since March of last year something is bound to break. In this case, it was a handful of what are called super-regional banks: Silicon Valley Bank, which was shut down, and Signature Bank and First Republic which were taken over by larger institutions. Despite the scary headlines of a banking crisis and massive deposit outflows since the implosion of those three in March, it turns out, so far, the worst damage has been limited and is not being felt throughout the entire banking industry. According to a recent study by the New York Fed, the crisis has been largely relegated to super-regional banks, defined as having $50-$200 billion in assets. In contrast, small banks with under $5 billion in assets have held their own as far as deposits are concerned, regional banks with $5 to $50 billion in assets have experienced a slight uptick in deposits and the large banks, greater than $250 billion in assets, have seen significant deposit inflows. Whether or not this trend lasts and the damage stays contained, remains to be seen. I was taken by surprise recently by some comments from Federal Reserve Chair Jerome Powell after the Fed’s recent decision to raise short-term interest rates for the tenth time in a little over a year. The quarter of a percentage point increase in the federal funds rate to a range of 5-5¼ percent was not unexpected, but what was, to me at least, was his personal opinion that the toll on the economy after such an aggressive tightening cycle could be different than it has been in the past. As he put it in the press conference: “I continue to think that it's possible that this time is really different.” “...It’s possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many, you know, prior episodes. Now, that would be against history.” He also said: “...the case of avoiding a recession is, in my view, more likely than that of having a recession.” What also struck me was that I had heard similar opinions from this week’s guest a week before Powell’s testimony! When someone in finance says “This time could be different” skepticism is usually warranted. But when Jay Powell and Savita Subramanian say it, it deserves a hearing. Savita Subramanian is the Head of U.S. Equity and Quantitative Strategy at BofA Global Research where her responsibilities include U.S. sector allocations for equities, forecasts for the S&P 500 and other major U.S. indices, quantitative equity strategy and global ESG research. Subramanian has been named a top-ranked analyst by Institutional Investor for the last 10 years. She has also been named to Barron’s list of the 100 Most Influential Women in U.S. Finance for the past three years. In this weekend’s episode Subramanian will explain why, contrary to the vast majority of institutional investors surveyed by BofA, she is recommending stocks over bonds and cyclical sectors over defensive ones. And on a more personal note for this week’s EXTRA feature, she shares her techniques for keeping cool in chaotic markets. If you miss the show on public television, you can watch it on our website over the weekend, along with our past programs and our guests’ One Investment recommendations. You can also find the WEALTHTRACK podcast on Stitcher and SoundCloud as well as iTunes and Spotify. Have a wonderful Mother’s Day weekend and make the week ahead a healthy, profitable and productive one! Best regards, Consuelo | 
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