SVB and US Stock Market

The recent failure of SVB Financial Group, a bank that receives deposits from and lends to a large number of startups, has had an impact on the US stock market, caused a tremor in markets throughout the world, and is known as the second-largest collapse in US banking history after the 2008 financial crisis. As a result, market participants have been concerned about potential disruptions in the financial system, which may cause a broad domino effect.

Silicon Valley Bank (SVB), the main hub of the startup economy, arose from a decades-old practice of seeking low-cost funding, with the added danger of massive unsecured deposits and unrealized losses. As a result, the FDIC has begun to monitor and keep an eye on other regional banks with comparable characteristics, as such variables contributed to SVB's quick failure.

One of the events that is thought to have contributed to SVB's failure was the sale of U.S. Treasuries to lock in financing costs and improve liquidity due to expectations of higher interest rates, which in the past, many believe, limited access to cheap capital and created vulnerabilities in some parts of the economy. This resulted in a $1.8 billion loss, including SVB, which operates as a Silicon Valley bank, held up to 89% of the $175 billion in unsecured deposits at the end of 2022; according to FDIC standards, $250,000 of deposits are insured.

Currently, the bank's investors and customers have expressed anxiety about SVB's ability to find a buyer soon. In comparison to the 2008 financial crisis, Washington Mutual found a buyer almost swiftly, whereas IndyMac took around eight months to find a buyer in 2009.

Such an incident is predicted to have an impact on companies that rely on banks to pay their employees, such as Roblox Corp and Roku (NASDAQ:ROKU) Inc, both of which have uninsured hundreds of millions of dollars placed at the bank, causing the company's shares to fall 10%.

US President Joe Biden announced that he will address the banking situation on Monday morning. Simultaneously, beside ensuring that SVB Bank customers will have access to all their deposits from Monday, in order to boost confidence in the banking system and particularly among venture capitalists and startup communities, US regulators such as the Federal Reserve and the FDIC are considering establishing a fund that would allow regulators to insure large deposits in banks that could suffer as a result of the Silicon Valley Bank collapse, by opening up facilities to enable banks to access an emergency fund, including the Federal Reserve will make it easier for banks to borrow from the Fed.

Nevertheless, US regulators stated that there are minimal indicators of a repeat of the 2008 financial crisis, in which the failure of a single financial institution precipitated a crisis in the larger financial system. Furthermore, US Treasury Secretary Janet Yellen and the White House stated that the US banking system is more resilient than it was during the 2008 financial crisis, and many experts believe that the ripple effect on the rest of the banking and financial sector may be limited because large financial institutions have more diverse investment portfolios than SVB.

The newest statement of regulatory assistance and steps aimed at mitigating the impact of Silicon Valley Bank resulted in a rise in US stock futures in Asian session trading on Monday morning. The S&P 500 futures in the United States jumped 1.2%, while the Nasdaq futures rose 1.3%, as investors wagered that future US rate hikes will be less aggressive.

Yet, the fall of Silicon Valley Bank is likely to increase the pressure on corporations to make profits in the future, and it may represent the end of an age in which small tech companies or startups could raise enough capital and withstand years of losses to build their market dominance. In the long run, this may result in technology disruption or technological supply chain disruption, as well as reduced competition and increased operating and fixed expenses in a wide range of industries.

Data for Technical Analysis (5H) CFD US30 DJIA

Resistance : 32354.7, 32420.7, 32527.7

Support : 32140.7, 32074.7, 31967.7    

5H Outlook

1H Outlook

Source: Investing.com                                         

Buy/Long 1 If the support at the price range 32130.7 - 32140.7 is touched, but the support at 32140.7 cannot be broken, the TP may be set around 32400.0 and the SL around 32125.0, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 32354.7 - 32364.7, TP may be set around 32470.0 and SL around 32135.0, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 32354.7 - 32364.7 is touched, but the resistance at 32354.7 cannot be broken, the TP may be set around 32140.0 and the SL around 32369.0, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 32130.7 - 32140.7, TP may be set around 32010.0 and SL around 32357.0, or up to the risk appetite.       

Pivot Points Mar 13, 2023 05:48AM GMT

Sources: Investing 1, Investing 2, Investing 3