Due to the recent banking crisis, global equities have remained volatile in the first quarter of 2023, as per Alliance Bernstein. The asset manager claims that the ensuing turmoil has eroded investor trust in a fragile market environment and has raised awareness about interest rate risks.

“Though new challenges from rising rates were to be expected, the speed of the banking turmoil was jolting,” writes Chris Hogbin, Head of Equities for Alliance Bernstein. “By quarter end, a financial system meltdown appears to have been averted—for now—by rapid regulatory action…”

The asset manager believes that the current sentiments among investors remain dismal despite US banking fundamentals exhibiting encouraging signs. And a lot of questions pertaining to the US banking sector and the country’s real economy remain unanswered.

“The banking stress didn’t happen in a vacuum…it reminded us that the ripple effects of a new interest-rate regime are still unfolding. Active investors must search for hidden linkages between companies and interest-rate exposures to surface evolving risks,” claims the asset manager. 

Additionally, Hogbin argues that along with interest rate risks, investors should be mindful of rising financing costs, the impact of difficult business conditions on companies, and the market ramifications of recent events.

Furthermore, Hogbin states in the aftermath of the banking crisis, banks will tighten regulation and capital requirements, making them safer but less profitable, adversely affecting US economic growth.

In conclusion, Hogbin lays down three lessons for investors. First, he urges them to be prepared for a situation that entails tighter credit conditions and greater capital expenses. Second, he stresses the need to be cautious regarding private markets and finally advises them to remain calm in the face of market volatility.

“Equity strategies with a long-term focus and a disciplined approach to valuations can tackle evolving risks with conviction—and give investors the confidence to stay the course, come what may,” states the asset manager.

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