The banking turmoil is a win for stocks as the Fed is opening the cash spigot, a top fund manager says
- The US banking turmoil is actually a good thing for stocks, according to the chief investment officer of Unlimited Funds.
- The Fed is injecting more money into the economy to support banks, and that's helping to boost equities.
The US banking turmoil is a win for stocks because it has prompted the Federal Reserve to pump more cash into the financial system, according to a top fund manager.
In a CNBC interview on Friday, Bob Eliott, the CEO and chief investment officer of Unlimited Funds highlighted that US equities have risen since the banking troubles started earlier in March.
"Since I was here two weeks ago, bond yields have fallen considerably, mortgage rates are down which is stimulative for the housing market, and stocks are up. Very important to recognise," Eliott said.
Since early March when Silicon Valley Bank (SVB) was shut down by regulators after a bank run and a capital crisis, US stocks have increased, with the S&P 500 and Nasdaq gaining nearly 3%, 7%, respectively.
"It's possible what we're seeing actually, is a lot of people pricing in some stimulation, some liquidity coming in from the Fed which is supporting asset prices and the bond market," he added.
In the wake of SVB's collapse that rattled the banking sector, the Fed has taken steps to pump more cash into the financial system in order to prevent more bank runs.
For example, it has created an emergency loan mechanism dubbed the Bank Term Funding Program that will allow banks to raise cash by pledging their bond holdings as collateral.
That can work in stocks' favour because an increase in financial liquidity makes more money available to invest in high-risk assets such as equities.
Alongside stocks, bitcoin is also enjoying its best quarter in two years amid the banking chaos as more investors view it as a "safe haven" asset.