The banking crisis continues, but the NASDAQ is holding down the fort. In the face of an on-going banking crisis, the investing community is speculating that the rise of the NASDAQ is mainly due to funds pursuing safe haven, re-allocating to mega cap tech. If it is just moving funds to mega cap tech, then how do we explain the semi-conductor ETF SMH’s outstanding performance against the S&P 500? Semi-conductor is a cyclical sector that typically leads the market out of a bear market. Below is a weekly SMH/SPY ration chart. The SMH outstanding performance is indicative of an early bull cycle. Perhaps investors have seen a future aided by artificial intelligence, way past the banking crisis.
The banking crisis is a man-made disaster. The Fed kept the interest rates too low for too long. The global financial systems rebuilt themselves from ashes with the aid of extremely low interest rates after the global financial crisis in 2008-2009. The Fed never thought about the exit ramp of zero interest rates. The Fed was forced to raise interest rates when inflation got out of control. The European banks are in much worse situation because the European central banks kept negative interest rates from 2014. The banking crisis will continue until the global central banks conjure up another solution to save the banking system.
The tech sector was over valued prior to the start of correction in November 2021. After a thirteen-month (November 2021 to December 2022) correction, the tech sector is appropriately valued and ready for the next growth engine in artificial intelligence. Perhaps that’s why semi-conductor is rising in anticipation of the next boom in artificial intelligence.
Below is the NASDAQ weekly chart. The banking crisis induced selloff made a low on March 13. The prior three-point down trend line provided support during the selloff.
Because the U.S. government hasn’t issued definitive official statements that all bank deposits are guaranteed, the banking crisis will continue until the U.S. government decisively says so. The day will come soon that the Fed will be forced to cut interest rates to save the banks! Until then, the stock market rally will be wishy-washy. It appears to be in no man’s land, but the March 13 low will hold.