Contagion fears from Silicon Valley Bank are overblown

Silicon Valley Bank run is an isolated event. So every breathes a sigh of relief and markets recovery. But if this happens, do we go back to focusing on the solid payroll report, record 11th beat in a row and immediately price back in a 50 bps hike next week?

Silicon Valley Bank logo

If so, how far do risk markets recover if the sigh of relief is met by soaring interest rates again.

Or does the contagion get worse?

Rate plunge pricing of hikes comes out of the market. The markets get wobbly on the fears of a worsening financial system. But what about inflation? Does this tank the economy and inflation with it?

Or is it a longer-term head fake that results in another round of stimulus/sugar high to boost already elevated inflation even more down the road?

Regardless of how quickly Silicon Valley Bank fallout is contained, the genie of financial stability risk is once again out of the bottle.

I think the Fed starts integrating more moderate language into their messaging and thinks twice about pushing harder at this point.