CNBC Daily Open: Markets are pricing in the best of both worlds

A man stands on the trading floor of the New York Stock Exchange (NYSE) on March 23, 2023 in New York City.

Spencer Platt | News from Getty Images | Getty Images

This report is from today’s CNBC Daily Open, our new newsletter for international markets. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Do you like what you see? You can login Here.

Investor fears are fading. Is it premature?

What you need to know today

The final result

Fears are fading and markets are recovering. But it would be too early to celebrate – at least not until we know how the economy is faring from forthcoming reports.

Yesterday all major indices rose. The S&P 500 was up 0.57%, the Dow Jones Industrial Average was up 0.43% and the Nasdaq Composite was up 0.73%. Investors continued to flock to tech stocks, with Amazon up 1.75%, Microsoft up 1.26% and Netflix up 1.93%. “The Silicon Valley bank fiasco was just the oxygen the tech bull needed to get out of his fear and get back to work.” said CNBC’s Jim Cramer.

How do we know investors are regaining confidence other than basing their sentiment on market movements? We look at the CBOE Volatility Index. The Volatility Index is derived from the price of S&P 500 options and measures market expectations of how the S&P will move over the next 30 days. Hence, it serves as a proxy for investors’ fears. It is currently around the level last seen in early March before the collapse of the SVB.

In other words, markets appear to be pricing in the best of both worlds: “a recession that allows for low interest rates and sharply lowering inflation, but does not have a massive negative impact on corporate earnings,” Ajay Rajadhyaksha, global research director at Barclays, wrote in one Thursday message.

That might be premature as Rajadhyaksha suggests. Yesterday’s jobless claims figure, although reported up, is still below what the Federal Reserve would like to see for a significant slowdown in the job market. We have more detailed data on the economy with the release of the Personal Consumption Expenditure Index later today and the March jobs report next week.

For now, though, it’s undeniably nice to have a break from the banking crisis.

— CNBC’s Dan Mangan contributed to this report.

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