Your MoneyStocktake

Calm returns to stock markets with S&P on the rise

Things may well get worse but, for now, investors will be relieved March didn’t turn out nearly as bad as feared

Bank failures, wild swings in global bond markets, renewed fears of an economic hard landing – a lot of market-moving events were packed into March, and yet the S&P 500 ended the month higher. Volatility, as measured by the Vix index, has fallen back below historical norms. What gives?

One could argue things are less placid than they seem, and that strength in a few mega-cap tech stocks – more of which anon – has kept indices afloat. Still, investors have clearly decided 2023 is not 2008. The spike in the Vix was a short-lived affair, with Wall Street’s so-called fear index soon returning to near 14-month lows. Additionally, bulls argue a more dovish Federal Reserve may be good for stock prices, that inflation is falling, and that price action indicates markets are already looking ahead to brighter economic times.

To bears, this smacks of complacency. Morgan Stanley’s Lisa Shalett, for example, says bank turmoil will likely result in tighter lending standards and financial conditions, increasing the risk of recession. Additionally, financial stability risks could force the Fed to prematurely abandon its inflation-fighting efforts, resulting in inflation staying higher for longer even as the economy slows – the dreaded stagflation scenario.

Things may well get worse, who knows; but for now, investors will be relieved March didn’t turn out nearly as bad as feared just a few short weeks ago.

Proinsias O'Mahony

Proinsias O'Mahony

Proinsias O’Mahony, a contributor to The Irish Times, writes the weekly Stocktake column