Wells Fargo – Downstream Ripples of Economic Uncertainties

From investor’s guidance out of Wells Fargo this week – watching the banking concerns mount.

Key takeaways

As the week progresses, financial stress and stability concerns have shifted from U.S. regional banks to European global banks.

While we do not view these financial system strains as symptomatic of the entire industry, we have been saying for the past year that rising interest rates, falling money supply growth, and tighter liquidity conditions across the economy’s financial sector are all working to quell inflation, but at the cost of a slower pace of economic activity.

What it may mean for investors

Do we see the events of the past week being systemic or a broader crisis?

As the week progresses, financial stress and stability concerns have shifted from U.S. regional banks to European global banks. The spotlight’s shift to Europe is reinforcing investor concern and continues the recent risk-off environment in capital markets. This is a powerful example of how rising interest rates can create similar stresses across those financial institutions that fail to manage their assets to allow for swings in customer demand for cash.

In fact, this week marks the one-year anniversary of the Federal Reserve’s (Fed’s) first interest rate hikes. The lagged effect of tightening financial conditions is pressuring economically sensitive sectors of the economy, and investors are responding by moving toward more traditionally conservative asset classes and sectors. We have been expecting rising interest rates to affect the economy and financial system, and for this reason have favored a defensive stance in managing portfolio exposures.

At WestXDC, across our business communities – we’re all watching closely, saving some cash, slowing unnecessary spend, examining our diversity in financing. At the same time as investing in ourselves for what we feel is growth ahead, in spite of so many economic headwinds.

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