We examine whether the recent bank failures carry further implications for the economy, determine if the shape of the yield curve is a sign of an imminent recession, and share valuable lessons as the second quarter begins.

Bank Fallout Risks Economic Contagion

Mark Luschini, Chief Investment Strategist

The economic landscape continues to wrinkle as the lagged effect of the Federal Reserve’s rate hike in March 2022—the first since 2018—and subsequent hikes gain traction.

In last month’s issue, we discussed the strength of the labor market as the key to postponing a recession, should one develop resulting from the Federal Reserve’s ratehiking campaign designed to thwart inflation by cooling demand. While we continue to believe that to be the case, recent events unfolding in the banking sector have presented a new twist to evaluate in the context of its spillover to the broader economy.

A Volatile Yield Curve

Guy LeBas, Chief Fixed Income Strategist

For decades, investors and economists have relied on the shape of the yield curve as an indicator of fundamental growth prospects and financial risk-taking.

During the course of the last 12 months, that shape has changed wildly—as fast as at any point in the last 40 years. For simplicity’s sake, we often focus on the difference between 2-year and 10-year maturities in evaluating the shape of the yield curve, also known as the “2s/10s spread.”

Lessons Apparently Never Learned

Gregory M. Drahuschak, Market Strategist

Advice most often attributed to Winston Churchill says: “Those that fail to learn from history are doomed to repeat it.” In the investment world, not learning from history can be costly.

Of all the mistakes investors might make, reaching too far for yield is the worst and it often occurs in situations least able to withstand the potentially negative consequences.


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About the authors

Mark Luschini

Chief Investment Strategist, President and Chief Investment Officer, Janney Capital Management

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Guy LeBas

Director, Custom Fixed Income Solutions

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