As we reflect on the first quarter of 2023, we are reminded that change is the only constant in life. The dynamic economy and financial markets have presented fresh challenges, and understanding the key takeaways and their implications for the future is essential. Despite some alarming issues in the economy, particularly in the banking system, resilience prevailed. The ensuing turmoil may have shaken investors, but they swiftly regrouped, giving both stocks and bonds a much-needed boost as the quarter wrapped up.

The labor market remained strong, with solid payroll gains in January and February. Although the unemployment rate rose slightly in February, the labor force participation rate held steady, which is a sign of health. However, inflation stayed stubbornly high, prompting the Federal Reserve to continue raising interest rates in March, despite the turmoil in the banking sector. The Fed has signaled its commitment to raising rates in future meetings as well. As a result, stock and bond market volatility are expected to continue.

A Brief Note on the Banking System

In March, two major U.S. banks suddenly failed and caused the strength of the fractional banking system to be called into question. Until Treasury Secretary Janet Yellen reassured depositors that their balances above FDIC coverage levels would be secured, investors sold off shares of banks, with smaller banks bearing the brunt of the selling. As the fear of bank runs spread through the system, and deposits trickled up from smaller banks to larger, the Treasury and Federal Reserve essentially decided to de facto backstop deposits over the FDIC coverage levels for failing banks, easing concerns. While this decision has negative implications over the long run, such as moral hazard, it has stabilized the banking system.

Charles Schwab, the brokerage firm used by Valley Peak Financial, is also a bank that was exposed to the possibility of bank runs in March. CEO Walt Bettinger released a statement on March 13th about the state of Charles Schwab:

“For over 50 years, Charles Schwab has prided itself on being a safe, secure, and strong financial institution, the result of managing the firm with a “Through Clients’ Eyes” strategy and effective, disciplined risk management practices. We understand, though, with the heightened attention in recent days, people may still have questions. To the extent there are questions about any impact on Schwab, we want to clarify a few important points: 

• Schwab investments held at the Broker Dealer are not commingled with assets at Schwab Bank.

• Schwab has a broad base of high-quality customers across multiple lines of business, capital well in excess of regulatory requirements, a high-quality and relatively small loan book, and a conservative investment portfolio that is 80% comprised of securities backed by the U.S. Treasury and various government agencies. 

• We believe one of the best indicators of the strength and stability of the firm is our client activity. Our February results show that clients entrusted Schwab with more than $41.7 billion in net new assets – our second-strongest February ever following our strongest January ever. Our growth and momentum have continued in March, with daily net new assets of over $2 billion per trading day month-to-date, including Thursday and Friday of last week. 

• Following the recent events in the banking industry, we are pleased to see the U.S. Treasury Department, Federal Reserve, and FDIC step in with decisive action to support depositors during this critical time. We think the steps announced today provide an additional layer of protection for individuals and will help boost confidence in the American banking system.  

• Collectively, more than 80% of client cash held at Schwab Bank is insured dollar-for-dollar by the FDIC. According to S&P Global Market Intelligence, that percentage is among the highest of the top 100 U.S. banks. As a comparison, the banks in the news the last few days have between 2% and 20% of their deposits insured.

• As a further safeguard, Schwab has access to over $80 billion in borrowing capacity with the Federal Home Loan Bank (FHLB), which is an amount greater than all our uninsured deposits. That helps provide the firm significant access to liquidity, so money is there when clients need it. 

• Schwab does not have any direct business relationship with Silicon Valley Bank or Signature Bank, so we do not have exposure to any direct credit risk from either.

Schwab’s long-standing reputation as a safe port in a storm remains intact, driven by record-setting business performance, a conservative balance sheet, a strong liquidity position, and a diversified base of 34 million+ accountholders who invest with Schwab every day. As such, we remain confident in our approach and in our ability to help clients through all kinds of economic environments. We stand ready to support our clients with award-winning service and time-tested expertise.”

We feel confident that you are in good hands. As you know, I am always available to discuss what is on your mind.

With you for the long haul,

Carter Ellis, CFP®

Founder

Disclosures:

 Past performance is no guarantee of future success. This material is for informational use only and should not be considered investment advice.

 The opinions expressed are those of Guardian Wealth Advisors, LLC. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed. Investing involves risk. Principal loss is possible.

 Investment advisory services offered though Guardian Wealth Advisors, LLC D/B/A Valley Peak Financial. Guardian Wealth Advisors, LLC ("GWA") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about GWA's investment advisory services can be found in its Form ADV Part 2, which is available upon request. GWA-22-35