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  • Writer's pictureHolzberg Wealth Management

How Silicon Valley Bank Collapsed and What Are the Consequences to the Broader Markets?

HWM Market Recap - April 2023

Holzberg Wealth Management Newsletter
Executive Market Summary

Up until several weeks ago, many pundits and economists would say that the market was showing signs of looking up. Inflation was still high but easing, and consumer spending was resilient. Outside of a few industries, the labor market was strong. Retail investors started pouring record amounts of money into the stock market. The Federal Reserve's goal of a soft landing, or no landing, seemed achievable. And then it happened.

First, it was Silicon Valley Bank and Signature Bank, then First Republic Bank, and then Credit Suisse. A number of banks are in hot water as their overexposure to risk is boiling to the surface. So what is going on?

Let's focus on Silicon Valley Bank (SVB), the largest U.S. bank to fail since the Great Financial Crisis of 2008. Arguably the cracks began to show for the bank in January. During its quarterly earnings report, SVB revealed that the assets it was holding had tens of billions of dollars in unrealized losses. These assets were heavily invested in long-term government bonds with substantial interest rate risk. Therefore, as the Fed increased interest rates aggressively, the value of SVB's bonds decreased substantially. In other words, if it were forced to liquidate the bonds, SVB would be underwater -- which at the time seemed unlikely. Every bank has a risk department that monitors the risk levels of their assets, but SVB was operating without a Chief Risk Officer from April 2022 until January 2023.

The next piece of the puzzle was a billionaire tech venture capitalist named Peter Thiel -- a co-founder of Paypal and one of the first investors in SpaceX and Facebook. By Thursday, March 9th, the influential VC had withdrawn all of his firm's money from SVB while also advising his portfolio of companies to do the same. Word got out, and many other tech leaders started doing the same, followed by individuals hearing the news, leading to a run on the bank. The next day, the Federal Deposit Insurance Corporation (FDIC) closed the bank.

The FDIC is a federal program that insures bank deposits up to $250,000. Therefore, so long as you have less than $250,000 in cash at a bank, that money is guaranteed by the full faith and credit of the U.S. government. If you have more than the insured limit, the FDIC will only guarantee the first $250,000 but nothing beyond that. SVB, unfortunately, had an unusually high percentage of uninsured deposits. In fact, as of December, about 95% of deposits were over the $250,000 FDIC limit. So consequently, heading into the weekend when banks are closed, customers had no guarantees that they would get all their money back -- at least the amounts over the insured limit.

Naturally, people started getting rightly concerned about the status of the banking industry. Over that weekend, no deal was brokered to buy out the bank, so the Treasury Department, Federal Reserve, and FDIC issued a joint statement and took an extraordinary and necessary step to instill confidence in the financial system. The U.S. authorities agreed to make additional funding available to instill confidence that vulnerable banks will be able to meet the withdrawals demanded by their customers, even those uninsured.

As of today, First Citizens BancShares acquired SVB's deposits, loans, and 17 bank branches, and the bank's U.K. arm was sold to HSBC for £1. However, some $90 billion of SVB's assets remain with the FDIC.

So, what can we take away from this? With the Federal Reserve raising interest rates from near zero to 5% in one year, something was bound to break. No one could know beforehand what or when it would be, so our strategy was to proceed with caution.

Even now, it is difficult to say what sort of ripple effect this will have on the economy in the longer term. Small and mid-sized banks saw many of their customer's deposits walk out the door and go to their 'too big to fail' competitors. It is estimated that since the collapse of SVB, around $500 billion was moved into money market funds and bigger banks. Yet still, there are over $7 trillion in uninsured deposits.

Shortly after regulators seized control of the banks, shifts in the market indicated that investors were predicting the Fed would be forced to pause raising interest rates and potentially even begin cutting them. But this didn't happen. The Fed raised rates by another quarter of a percent to continue its fight against inflation.

Nonetheless, most of the macroeconomic and monetary data we track points to the fact that we remain in an elevated risk environment. As we discussed last month, markets continue to digest various domestic and international problems, and the debt ceiling debate is still ahead of us (as we wrote about in February). All of this is to say we anticipate continued volatility. For this reason, we believe we are not out of the woods yet and remain cautious.

Markets Overview

Monthly Changes in Indices Year-to-Date Changes in Indices

  • S&P 500: +3.51% S&P 500: +7.03%

  • Dow Jones Industrial Average: +2.07% DJIA: +0.90%

  • Nasdaq Composite: +6.69% Nasdaq Composite: +16.77%

Monthly Performance By Sector Year-to-Date Sector Performance

  1. Technology +10.84% 1. Technology +21.62%

  2. Communication Services +8.67% 2. Comm Servs +21.19%

  3. Utilities +4.88% 3. Consumer Discret +16.13%

  4. Consumer Staples +4.21% 4. Materials +4.26%

  5. Consumer Discretionary +3.05% 5. Industrials +3.44%

  6. Health Care +2.21% 6. Real Estate +1.92%

  7. Industrials +0.64% 7. Cons Staples +0.68%

  8. Energy -0.05% 8. Utilities -3.26%

  9. Materials -1.05% 9. Health Care -4.32%

  10. Real Estate -1.41% 10. Energy -4.41%

  11. Financials -9.52% 11. Financials -5.55%

Monthly Top 5 Performers

Technology +10.84%

Technology was the best-performing sector for the second month in a row. Its leaders included: Intel Corp (+31.05%), Advanced Micro Devices Inc (+24.73%), Salesforce Inc (+22.11%), Arista Networks Inc (+21.02%), and NVIDIA Corp (+19.66%).

Communication Services +8.67%

Communication Services jumped into the top five performing sectors for March, with its leaders including: Meta Platforms Inc (+21.15%), Alphabet Inc Class A (+15.18%), Alphabet Inc Class C (+15.17%), Activision Blizzard Inc (+12.25%), and Take-Two Interactive Software Inc (+8.90%).

Utilities +4.88%

Utilities was the third-best performing sector for the month of March. Its leaders included: Southern Co (+10.34%), NextEra Eneregy Inc (+8.52%), Edison International (+7.73%), Pinnacle West Capital Corp (+7.55%), and Consolidated Edison (+7.07%).

Consumer Staples +4.21%

Consumer Staples was again one of the top five best-performing sectors. Its leaders included: The Kroger Co (+14.44%), McCormick & Co Inc (+11.96%), Kimberly-Clark Corp (+8.28%), Procter & Gamble Co (+8.09%), and Mondelez International Inc (+7.56%).

Consumer Discretionary +3.05%

Consumer discretionary was the fifth-best-performing sector in March. Its leaders included: Chipotle Mexican Grill Inc (+14.57%), Domino's Pizza Inc (+12.61%), Inc (+9.61%), Lennar Corp (+8.65%), and Darden Restaurants Inc (+8.51%).

​Political Events Influencing the Economy
  • The Consumer Price Index (CPI) rose 0.4% in February, easing from a 0.5% gain in January. Over twelve months, prices were up 6%, down from a rate of 6.4% year-over-year in January. The core CPI (which excludes food and energy prices) rose 0.5% month-over-month in February and was up 5.5% annually. This is the smallest 12-month increase since September 2021.

  • The Federal Reserve again raised interest rates by 25 basis points (0.25%) this month, marking the ninth straight interest rate hike.

  • The Bureau of Labor Statistics reported that U.S. employers added 311,000 jobs in February. That said, unemployment did tick up to 3.6% from January’s over-50-year low of 3.4%.

  • Following the news of Silicon Valley Bank and Signature Bank, the yield on 2-year U.S. Treasury Notes fell at a rate we have not seen since Black Monday in 1987. Two-year treasury notes dropped 55.6 basis points (5.56%) to 4.03%.

  • According to Freddie Mac, the average rate on a 30-year fixed mortgage is 6.42%. Rates increased slightly in March and peaked at 6.73%, the highest since November when they hit a two-decade high of 7.08%.

  • The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which tracks the change in value of the residential housing market, saw the rate of increase for housing slowing for the seventh month in a row. The index was up 3.8% year-over-year in January, easing from a rate of 5.6% in December. It was the slowest annual rise since December 2019. The cities with the most significant annual price gains were Miami (+13.8%), Tampa (+10.5%), and Atlanta (+8.4%). Prices fell annually in San Francisco (-7.6%), Seattle (-5.1%), San Diego (-1.4%), and Portland (-0.5%).

  • According to the National Association of Realtors, the national median existing-home sale price fell 0.2% year-over-year to $363,000 in February. This marks the end of 131 months of consecutive annual increases, the longest on record. The Western U.S. and Northeast experienced the most significant price cuts, while prices climbed in the Midwest and South.

  • Sales of previously owned homes, which comprise most of the market, increased by 14.5% from January to February, snapping a twelve-straight-month streak of declines.

  • In his first veto, President Biden rejected a bill that would have overturned a Labor Department rule regarding ESG funds -- also known as sustainable or impact funds. The now-preserved DOL rule allows retirement fund managers to consider environmental, social, and governance (ESG) factors in their investment choices.

  • Protestors in France have flooded the streets of cities across the country, showing their disapproval of President Emmanuel Macron’s plan to raise the national retirement age. President Macron used his executive power to bypass Parliament and raise France’s official retirement age from 62 to 64. Macron campaigned on the promise to raise the official retirement age to help keep France’s shrinking pension fund alive, noting that the retirement age needs to reflect that French citizens are living on average three years longer than a few decades ago.

  • Apple and Microsoft now make up 7.11% and 6.14% of the S&P 500, respectively. This is the highest level of dominance that any two stocks have had in the index since IBM and AT&T in 1978.

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About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.

** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.


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