From a deep dive into the banking sector | Franklin Templeton – Beyond Bulls & Bears

Beyond the near-term turmoil, there may need to be a re-evaluation of the regional banking model in the United States, according to a recent panel hosted by Stephen Dover, Head of Franklin Templeton Institute. The panel discussed the latest developments and investment implications—including a move to money market funds.
Uneasiness about the health of the banking sector has spread from Silicon Valley Bank to other US regional banks, and also across the Atlantic to Europe. This contagion is reminder that fear itself can be a self-fulfilling prophecy. This unfolding stress, plus the ninth consecutive Federal Reserve (Fed) interest-rate increase and the likelihood of more rate increases to come has led to a near freeze in new corporate debt issuance, even for the companies with the highest credit ratings. However, financial markets are essentially pricing in that the Fed is wrong, and that growth will cool and rates will drop by year end. The Fed’s monetary policy plans and the current market outlook are irreconcilable. Which view is right? We gathered four experts across various areas of the financial sector to help to dissect what the risks are and where the opportunities might be. Following are highlights of our discussion. Watch the full replay here
We want to thank Miguel del Gallego (Senior Research Analyst, ClearBridge Investments, US Financials, Regional and Small Banks), Ivor Schucking (Research Analyst, Western Asset Management, US Financials), Bill Zox(Co-Portfolio Manager, Brandywine Global, High Yield and Corporate Credit Strategies), and Muhammad Waqas (Benefit Street Partners, Senior Research Analyst, Financial Services) for their participation in the discussion.
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Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors or general market conditions. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value.
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The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.
Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
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1. An AT1 is a form of Contingent Convertible (CoCo) bond which a bank struggling financially does not have to repay.
 
Link to Stephen H. Dover, CFA‘s articles
Chief Market Strategist and Head of Franklin Templeton Institute
Franklin Templeton
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This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.
Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
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