Recession, Yes. But Markets Cling to Hope Crisis Will Be Avoided

Two brutal weeks for banks have mostly scuttled hopes in markets that a US recession can be avoided. But a close read of the cross-asset landscape still finds investors unconvinced the stress portends a genuine financial crisis.

From stocks to credit to inflation breakevens and the dollar, the message is one of growing pessimism about economic growth that hasn’t morphed into panic about systemic collapse — yet. Moves like the 5.8% surge in the Nasdaq 100 this week tell a tale of investors shaken by the failure of three US banks and the wobbling of Credit Suisse Group AG while resisting the sell-everything ethos that marked catastrophes like 2008’s.

“Everybody is talking in a bearish way, but they’re not acting that way,” said Matt Maley, chief market strategist at Miller Tabak + Co. “The market is definitely signaling that we’ll avoid a full-blown crisis.”

Of course, things change — more bank failures this weekend would alter the calculus, and drawing firm conclusion from any snapshot in time is risky. Crises don’t emerge all at once. What looks placid now could be the early innings of calamity. As of now, though, the market backdrop has yet to distinguish itself from other moments that didn’t end in blowups.

For a zoomed-out picture, a global cross-asset market risk indicator kept by Bank of America Corp. jumped to the highest level since October this week while holding below levels reached during the pandemic and 2008. The metric gauges stress levels across financial markets measuring future price swings implied by option markets in global equities, rates, currencies and commodities.