Wild Stock Swings Continue Amid SVB Turmoil

Investors who were looking for a break from the sudden fluctuations in technology stock prices are now dealing with fresh crosscurrents as a result of Silicon Valley Bank's failure.

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Just on Monday, turbulent trading saw the Nasdaq 100 Index rise as much as 0.6%. Futures futures rose by as much as 2.1% before losing the majority of their gains.

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The regulators' guarantees that each and every one of the bank's depositors will be safeguarded were what initially inspired the hope. Additionally, investors believed that even a reasonably confined banking crisis may prompt the Federal Reserve to scale back its aggressive interest rate hike campaign, which would be advantageous for highly valued assets like growth stocks.

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Contrary to that, there is a larger worry that the failure of Silicon Valley Bank is a sign of more trouble to come for the tech industry. The effects of higher borrowing costs are just now starting to be felt in the economy, and a downturn might further collapse the highly valued tech stock bubble in 2020–2021.

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"The question now is whether risk appetite has been more severely damaged, as markets fear they are trapped between inflation on the one hand and recession on the contrary, or whether fresh aspirations for a pause or perhaps a pivot in bond yields from the US Reserve Bank and Bank of England stoke a new rally in risk assets," said Russ Mould, investment director at AJ Bell Plc.

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Tech investors had wished for a more tranquil 2023. The Nasdaq 100 has stabilized and is up 8.1% this year through Friday after falling by a third last year as a result of the Fed's rate rises. Bulls believed that the central bank would successfully contain inflation, allowing it to finally stop raising interest rates without sending the economy into a recession or destroying corporate profits.

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Over the course of its four-decade existence, Silicon Valley Bank developed close ties with tech firms. Roku Inc., Roblox Inc., and Juniper Networks Inc. are just a few of the companies that trusted the bank with their savings. But, the stock market's fall is more a function of sentiment than it is of any prospective impact on industrial finance.

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The Treasury Department, Federal Reserve, and Federal Deposit Insurance Corp. together announced actions on Sunday aimed at bolstering confidence in the banking sector, instilling some confidence in investors. Authorities hurried to control the damage.

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The impact on the tech space will probably be minimal, according to Redmond Wong, economic strategist at Saxo Capital Markets HK Ltd., barring the US Treasury and the Fed failing to stem the contagion.

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Investors in some businesses that have shares in emerging digital companies were alarmed by the lender's bankruptcy. The Japanese giant SoftBank Group's shares fell 1.7% on Monday, although it allayed some worries by stating that it didn't anticipate any financial effects from the decline.

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According to Vey-Sern Ling, general manager at Union Bancaire Privee, all this upheaval could result in unanticipated good news for technology companies if it makes the Fed more reluctant about raising interest rates.

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The stress brought on by the lender's failure, according to experts at Goldman Sachs Group Inc., may force the Fed to postpone its monetary easing cycle next week.

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For Fed Chair Jerome Powell, who just a few days ago hinted at a resumption of interest rate hikes, this would be an about-face.

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The day's tech chart

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The Cboe VIX Index of US stock markets experienced its highest increase since June on Thursday, and it kept increasing on Monday as Silicon Valley Bank's apparent problems sparked broader concerns about the debt holdings of the US banking industry. The index increased by 18%, or 3.5 points, on Thursday, and continued to advance marginally on Monday. As a result of a rise in stocks last month, the VIX Index dropped as low as 17.87 points, the lowest level in more than six months, indicating low volatility in the stock market.