The stock market is going to be trading flat as long as risk-free assets offer much more yield

The stock market is going to be trading flat as long as risk-free assets offer much more yield
Spencer Platt/Getty

Good morning. I'm senior editor, Max Adams, standing in for Phil Rosen.


It's official: UBS will take over Credit Suisse in a historic deal.

The Swiss National Bank made the announcement Sunday, saying that with the takeover, "a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation."

In an hour-long call held late on Sunday evening, top UBS executives defended their decision — and analysts began breaking down what comes next.

Meanwhile, markets are still reeling from the SVB fiasco, but there's a simpler reason why the stock market is going to be trading flat for the foreseeable future.


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1. Banking turmoil aside, the stock market doesn't have much momentum as long as investors are getting much higher yields on risk-free assets.

That's according to Goldman Sachs analysts, who wrote at the end of last week that investors are still adjusting to high valuations, and that equities should remain flat for a while as juicier yields are offered on much less risky investments.

"We see two potential problems," the analysts said. "The first is that the US equity market, long a significant outperformer, remains expensive relative to history and relative to real rates."


The second issue, they said, is that cash-equivalents like short term Treasury bonds are offering much higher returns for much less risk. Even falling from recent highs, the 2-year Treasury bond was yielding 3.87% on Friday afternoon, compared to a dividend yield of about 1.6% for the S&P 500.

The banking crisis doesn't help matters for stocks. Even before Silicon Valley Bank crashed, investors were feeling the pain of a volatile stock market. Now, the trend towards less risky assets has been accelerated further.

Since SVB fell, people have been pouring into money market funds at the highest rate since COVID began, with depositors fleeing the banking chaos and investors looking for somewhere stable to hide out until the storm passes.

Things aren't set to improve much either. Goldman Sachs expects earnings growth to be basically flat this year, and just 5% in 2024. So despite the recent slump in stocks, that means valuations will likely remain relatively high in the absence of a steep sell-off at some point this year.

"If, as we expect, global economies avoid recessions this year and inflation continues to moderate, the fundamental backdrop for equities would look more attractive for longer term investors," the Goldman analysts write.


But until then, stocks are still too expensive and the risk-reward proposition doesn't look great for investors.

What's your prediction for the stock market through the first half of this year? email me ( to let me know.

In other news:

The stock market is going to be trading flat as long as risk-free assets offer much more yield
Fed Chairman Jerome Powell.OLIVIER DOULIERY/AFP via Getty Images

2. Bitcoin, which is largely seen as a hedge against the banking system, hit a nine-month high of more than $28,000 late Sunday. Meanwhile, US stock futures are sharply down early Monday as investors remain on edge following the take over of Credit Suisse. Here are the latest market moves.


3. Earnings on deck: Foot Locker, Pantheon Resources, and more, all reporting.

4. Bank of America has a list of small cap stocks it recommends to prep for a recession. BofA's US Regime Indicator tells us we've entered the downturn phase. Here are 30 stocks the bank says are poised to outperform in this period.

5. Executives at SVB and First Republic Bank sold millions in stock right before the chaos struck. First Republic's chief risk officer sold shares just two days before the SVB collapse. President Biden has called on Congress to authorize regulators to claw back executives' compensation.

6. Tech stocks surged last week as broader markets flailed amid the banking turmoil. Mega-cap tech didn't just brush off the crisis, the sector vastly outperformed. A slew of factors including a possible TikTok ban, insulation from the banking woes, and expectations for lower rates made tech an unusual safe haven last week. Here's everything you need to know.

7. The SVB calamity has made a recession more likely in 2023. Wall Street is worried that the episode will distract the Fed from its inflation fight. Whether the central bank keeps hiking rates, pauses, or cuts, there's downside in almost every scenario. "I don't really see a pass through the next 12 months without getting a recession," one source said.


8. There are clear steps the Fed can take to calm markets after SVB. JPMorgan Asset Management chief strategist David Kelly said one thing to do is stop raising interest rates now. Investors are scared and the central bank should keep the focus on the long term. Here are four things he thinks Powell and the Fed should do to soothe markets.

9. Two real-estate investors who profited $1.2 million in 2022 share some advice. Aria Khosravi and Alan Blue have flipped 91 houses, and that's helped them get to know the process inside and out. These are the four biggest tips they have to pull off a successful flip.

The stock market is going to be trading flat as long as risk-free assets offer much more yield
Markets Insider

10. Zurich-listed shares of Credit Suisse are down more than 58% early Monday. UBS chairman Colm Kelleher said in a statement that the acquisition of Credit Suisse is attractive for UBS shareholders "but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue." Read more.

Curated by Max Adams in New York. Feedback or tips? Email


Edited by Jason Ma in Los Angeles and Hallam Bullock (@hallam_bullock) in London.