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Smoke Clearing Ahead of Fed Meeting; Markets Up

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Markets welcomed this morning’s opening bell to a new trading week with the four major indices in the green. Aside from grappling with staying positive this morning on the tech-heavy Nasdaq — which has traded higher over the past week, month and year to date — we remained above water and closed in positive territory: the Dow, which was +418 points at session highs, closed +377 points, +1.19%. The S&P 500 wasn’t far off at +0.90%, while the Nasdaq came in +0.39%. The small-cap Russell 2000, down -2.5% in the past week, bounced back +1.18% today.

Answers to the ongoing destabilization in the global banking industry are helping salve what a week ago market participants were palpably concerned with. UBS (UBS - Free Report) taking over beleaguered investment bank Credit Suisse is a big part of this. The market has also been able to re-price futures based on a lower expected interest rate hike this Wednesday — 25 basis points (bps) or flat, for now — as opposed to the 50 bps investors had baked into the cake previously.

The banking issue is also showing signs of self-regulating (while the White House keeps close tabs on developments), such as First Republic Bank receiving tends of billions of dollars’ worth of deposits from other banks of late to help keep it solvent. And the yield curve between two-year and 10-year Treasury notes remains inverted, the margin of this inversion is now roughly half what it was a week ago: 45 bps rather than 90. Basically, the banking industry does not appear to show signs of panic; thus market investors aren’t feeling the heat, either — at least for today.

We’re also seeing crude oil trading at its lowest levels in more than a year, or at least we had been prior to Monday’s trading: U.S. WTI gained a point and a half today on April futures, but still below $68 per barrel. Brent crude gained more than a percentage point on the day, and is now up close to $74 per barrel on April futures. These represent what looks like another leg down from the $80 per barrel steadiness going back to late last fall. And this is a healthy sign for other aspects of the economy.

Currently, we’re in between earnings seasons and this week doesn’t have a lot of economic reports due to hit the tape. The Fed’s move is clearly the most important foreseeable market event for this week, and even that is being parsed finely ahead of time. Spring officially will have sprung mid-week, and this portends to shifts in consumer behavior in the coming weeks and months. In short, the smoke is clearing — and most everything looks relatively OK from here.

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