In March of last year, the near-simultaneous collapse of Silicon Valley Bank, Signature Bank and Silvergate Bank shook confidence in the banking system. Many feared a recession was inevitable. Some predicted a stock market crash akin to the global financial crisis. Yet, the policy response was swift and meaningful. In a short time, recession obsession faded as the economy proved to be resilient, and stocks marched on to new all-time highs.

This week we unpack what’s changed over the last year, what’s stayed the same and what could be ahead. Through risks and market swings, we remain constructive on the path ahead.

What’s changed: There’s been a lot of good

The economy has powered on. When things felt especially bad, Street expectations for a recession surged as high as 75%. Policymakers had the tools needed to navigate stress, the banking system as a whole looked sound and the magnitude and potential for contagion seemed smaller. 

Inflation progress has been real, and cuts are coming for good reason. As recession fears raged, markets quickly priced out all Federal Reserve hikes and even saw three cuts in 2023 to stem the foreseen bleeding – despite core inflation still running at a near 6% annual clip. Yet strength took root, and the Fed actually hiked another three times.

What’s stayed the same: There are still risks

Regional banks aren’t out of the woods. Moreover, with interest rates higher, all banks have been under pressure to up the ante on deposits (i.e., pay more) to keep savers in the door – if they can’t hack it, they risk their customers yanking their business and going elsewhere. 

Credit is still tighter, but stabilizing. Many worried that the spate of banking stress would harm growth, as tighter lending standards and profitability challenges led banks to reduce available financing. To be sure, lending growth did slow. Yet as we mentioned, the economy defied expectations, and loan growth is now stabilizing.

What could be ahead: Searching for long-term solutions

In the end, staying invested prevailed over the last year. It’s also worth noting that this week marks the four-year anniversary of the start of the COVID drawdown, when the S&P 500 fell almost 10% in a single day. As an unexpected pandemic gripped the globe, it would have felt really tempting to hit “sell.” But if you’d held on to your investment, it would have grown over 120% from that day until now.

Rick Barragan is the Managing Director, Los Angeles Market Manager, for
J.P. Morgan Private Bank.

[email protected] | (310) 860-3658

Source: J.P. Morgan Private Bank Insights, March 15, 2024. “One year later: Bank failures and lessons learned” By Madison Faller, Global Investment Strategist, J.P. Morgan Private Bank.