- Silicon Valley Bank's implosion could signal a 10% slump in US stocks and a recession lie ahead.
- Evercore ISI's Julian Emanuel said the lender may have failed because of surging interest rates.
Silicon Valley Bank's dramatic collapse could herald a sharp decline in US stocks and an economic downturn, one senior analyst says.
"If what we've seen in the last week is the first shot across the bow in terms of the effect of tightening, we are going to have a recession," Julian Emanuel, a senior managing director at Evercore ISI, told CNBC on Monday.
"You're going to get a retest of those October lows," Emanuel continued. His forecast implies the benchmark S&P 500 index might slump 11% to about 3,500 points, and the tech-heavy Nasdaq could slide 12% to around 10,100 points.
However, Emanuel suggested the decline in stocks would lay the groundwork for a new bull market.
"We do want to see enough of a downturn to make stocks attractive, to cause this cathartic moment where we can reset and multiples can begin expanding as the economic cycle turns," he said.
SVB imploded partly because it invested its deposits in long-duration bonds. Those plunged in value as the Federal Reserve, in an effort to stamp out inflation, hiked interest rates from nearly zero to upwards of 4.5% over the past year (bond prices move inversely to interest rates).
The California-based lender launched a stock sale last week to shore up its liquidity, but the move spooked its customers, causing a wave of withdrawals known as a bank run. SVB was caught short of cash, resulting in the Federal Deposit Insurance Corp. taking control of the bank on Friday, and guaranteeing its deposits on Sunday.
"To think that you would see financial stress of this kind develop in the system 24 hours after Chair Powell suggested he might go 50 on the 22nd, it just tells you how extremely uncertain the environment is," Emanuel said.
The top Evercore analyst was referring to market chatter before SVB's collapse, about the Fed potentially hiking rates by 50 basis points to upwards of 5% next week. Commentators also raised the prospect of a "no landing" scenario where the economy beats inflation but skirts a recession, and questioned whether rate hikes curb demand at all, he noted.
"All of that's out the window," Emanuel said. "It does feel like the downturn is closer than we thought a week ago."