While managers said the events of recent days are not a repeat of 2008's global financial crisis, sparked in banks, they did highlight that there may be long-lasting impacts.
The failure of SVB is a consequence of something much larger, said Iain Cunningham, portfolio manager at Ninety One. Markets have exited the "false equilibrium" of more 15 years of easy money and near-zero or negative interest rates, and SVB's collapse is an example of early signs of struggle for businesses that built their operating models around this period of false equilibrium, he said in a comment on Monday.
"The failure of SVB is a consequence of something much bigger and is likely to be the beginning of a broader delinquency, default and bankruptcy cycle rather than the end," Mr. Cunningham warned.
Arun Sai, senior multiasset strategist at Pictet Asset Management, agreed that the demise of the tech start-up bank was an issue arising from interest-rate hikes.
"The demise of the tech start-up lender is symptomatic of the economic strains caused by rapidly rising interest rates," Pictet's Mr. Sai said in a comment on Tuesday. The SVB situation "is a high-profile casualty of central banks' battle against inflation. Its demise is a reminder that interest-rate hikes have a nasty habit of operating with a lag."
Managers agreed that the SVB situation will likely pressure central banks into slowing the pace of interest-rate hikes, with the end of U.S. quantitative tightening coming earlier than previously expected.
A hike of 50 basis points at the next Fed meeting "now looks out of the question," Pictet's Mr. Sai said, with the expectation now of a 25-basis-point rise — although he added not to "rule out the U.S. central bank keeping rates on hold in March."
Silvia Dall'Angelo, senior economist at Federated Hermes, agreed that a 25-basis-point hike is in the cards. She said Tuesday's inflation report "is unlikely to sway the Fed ahead of its meeting … Following the stress episode in financial markets due to the collapse of SVB bank, financial stability is likely to rank as high as inflation among (the) Fed's considerations."
While a 50-basis-point hike had been an option last week, it "would be inappropriate in light of recent moves in financial conditions, while a pause would represent too large of a shift in their stance and would therefore convey a sense of panic. The overall tone of the meeting will likely be cautious, suggesting the Fed is wary of financial stability risks following the SVB story," Ms. Dall'Angelo said.
The Fed is "in a tight spot," agreed Charles Hepworth, investment director at GAM Investment, in a Tuesday statement. "Just when everyone had assumed that the collapse of Silicon Valley Bank (SVB) would push the Federal Reserve to not raising rates next week, today's inflation print in the US favors continued hawkishness."
The collapse of the U.S. bank is also a signal that "recession is more likely than investors previously thought," Pictet's Mr. Sai added, showing that rising borrowing costs are feeding through to the economy. Added to that, he said, many areas of the financial market have yet to fully price in the risk of a recession.
The BlackRock Investment Institute bulletin also said the situation reinforces its expectation of a recession, with executives anticipating financial conditions and credit supply tightening — particularly for sectors such as tech.
