If history repeats itself, how the financial markets have reacted to the collapse of SVB Financial is a bad omen. The S&P 500 SPX, -0.17% rose 7% and the Nasdaq Composite COMP, +0.18% gained 10% in the two months following the SVB’s collapse. When Bear Stearns collapsed in March 2008, rescued by JPMorgan Chase, the S&P 500 rose 11% and the Nasdaq rose 15% over the next two months. “As such, credit and tech led a 10-week rally that reversed in Q3, but at that time REITs, banks, energy, small caps were performing defensively in contrast to cyclicals currently tattooed with ‘hard landings,'” says BofA strategists led by Michael Hartnett. Of course, things got worse in 2008—the S&P 500 slipped 38% that year. BofA strategists say a recession now will crack credit and tech stocks, just as it did in 2008, but negative payrolls could be a buying catalyst for cyclical stocks this year. They drew on the UK experience to show why financial markets are unsettled by the debt ceiling wrangle, apart from some maneuvering in short-term yields and credit-default swap contracts. “If the political kabuki ends in a risk-off drama, the Fed does QE (as the Bank of England did last October),” he said. “This [is] Why other asset classes are not concerned. The Bank of England moved to buy long-dated government bonds following turmoil in financial markets, and particularly pension funds, which was later reversed.
