Despite the Federal Reserve (the “Fed”) raising rates over the past year at the fastest pace since the early 1980s, risk assets remained on a positive and robust trajectory in the first quarter of 2023. Investors appeared not to be thinking about the likely economic impact from 500 basis points (bps) of tightening this cycle. Rather, they seemed more focused on the Fed potentially cutting rates sooner than later. The high-profile failure of two banks, a collaborative rescue of a third, and the forced sale of Credit Suisse to UBS did not seem to shake the confidence of investors. It did apparently cause some concern among financial regulators as it prompted the U.S. government (Federal Reserve, FDIC and the U.S Treasury) to take the unprecedented action of guaranteeing all depositors in the failed banks regardless of the amount of the deposit. Depending upon one’s perspective, the markets are either extraordinarily resilient or in need of extraordinary support and by extension, extraordinarily fragile. 

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