Please note ThinkMarkets does not provide CFD services to residents of the US.

Please note ThinkMarkets does not provide CFD services to residents of the US.

Learn To Trade
 
Indicators & Chart Patterns

Deepen your knowledge of technical analysis indicators and hone your skills as a trader.

Find your detailed guides here
Trading Glossary

From beginners to experts, all traders need to know a wide range of technical terms. Let us be your guide.

Learn more
Knowledge Base

No matter your experience level, download our free trading guides and develop your skills.

Learn more
Learn To Trade

Trade smarter: boost your skills with our training resources.

Create a live account
Market Analysis
 
Market News

All the latest market news, with regular insights and analysis from our in-house experts

Learn more
Economic Calendar

Make sure you are ahead of every market move with our constantly updated economic calendar.

Learn more
Technical Analysis

Harness past market data to forecast price direction and anticipate market moves.

Learn more
Live Webinars

Boost your knowledge with our live, interactive webinars delivered by industry experts.

Register now
Special Reports

Engaging, in-depth macroeconomic analysis and expert educational content from our in-house analysts

Learn more
Market Analysis

Harness the market intelligence you need to build your trading strategies.

Create a live account
Partnership
 
Affiliate Programme

Grow your business and get rewarded. Find out more about our Affiliate Programme today.

Learn more
Introducing Broker

ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates.

Learn more
Proprietary Trading

Partner with us to build your own prop trading business. Enquire with our account managers today.

Learn more
White Label

We supply everything you need to create your own brand in the Forex industry.

Learn more
Regional Representatives

Partner with ThinkMarkets today to access full consulting services, promotional materials and your own budgets.

Learn more
Refer a friend

Receive $50 for you and your friend when you convert them into an active trader of ThinkMarkets.

Learn more
Partnership

Plug into the next-gen platforms and the trades your clients want.

Partner Portal
About ThinkMarkets
 
Sponsorships

Check out our sponsorships with global institutions and athletes, built on shared values of excellence.

Learn more
About Us

Find out more about ThinkMarkets, an established, multi-award winning global broker you can trust.

Learn more
Careers

Discover a range of rewarding career possibilities across the globe

Apply now
ThinkMarkets News

Keep up to date with our latest company news and announcements

Learn more
Trading Infrastructure

When it comes to the speed we execute your trades, no expense is spared. Find out more.

Learn more
Contact Us

Our multilingual support team is here for you 24/7.

Learn more
About ThinkMarkets

Global presence, local expertise - find out what sets us apart.

Create a live account
Log in Create account

March Madness: from bank failures to tech surges – a guide to successful trading in volatile markets

Lesego Mthombothi Lesego Mthombothi 11/04/2023
March Madness: from bank failures to tech surges – a guide to successful trading in volatile markets March Madness: from bank failures to tech surges – a guide to successful trading in volatile markets
March Madness: from bank failures to tech surges – a guide to successful trading in volatile markets Lesego Mthombothi

The world of finance had its own version of March Madness as weaknesses in the global banking system got exposed. 
 

It started when Silicon Valley Bank absorbed a USD 1.8 billion loss on its investments, causing a USD 42 billion bank run and making history as the second biggest bank failure in US history. 
 

Throughout the month, the global stock markets shifted from one extreme to another. At the start, the US Federal Reserve spoke of further interest-rate hikes to reduce inflation. However, SVB’s collapse led the market into a panic, triggering a domino effect that caused shockwaves across the US and Europe. 
 

Although bank regulators stepped in to prevent further turmoil, concerns persisted that banks had lost deposits or might clamp down on credit. As a result, there were fears of an economic slowdown, causing the market to shift from expecting interest rate hikes to an expectant decline. Bond prices increased, and yields fell as the market anticipated the Fed to reverse course in the year's second half. 
 

Although uncertainties around the banking sector have subsided to some extent, the situation remains unpredictable. Despite a significant share price decline of 15% in large banks and 22% in regional banks, the S&P 500 index managed to achieve an almost 4% increase in March. On the other hand, the tech-heavy Nasdaq, recorded its strongest quarter since 2020; with a remarkable increase of almost 22%. The market instinctively followed the Wall Street playbook of investing in tech shares during an economic slowdown or any signs of one. 



Source: Bloomberg 


The recent March Madness serves as a prime example of how specific strategies can help you not only survive, but also capitalise on profitable trades while everyone else is panic-stricken. After all, one of the benefits of trading CFDs is that you can make the most from both rising and falling markets. 

During a crash, most shares experience volatility, but it's uncommon for all shares to be negative.  These shares can present valuable buying opportunities, and traders tend to flock to them. To identify these strong shares, it's important to stay informed about financial and economic events as well as broader global trends over time. 
 

By analysing these factors, you can make more informed predictions about which markets are likely to rise or fall allowing you to open strategic trades. Paying attention to market indicators such as earnings reports, interest rates, and government policies can also help you identify emerging trends and opportunities. This time, the markets anticipated that the US Federal Reserve would pursue a less aggressive policy-tightening approach due to the emergence of some cracks in the banking sector. 

Short selling and hedging are techniques that can be used to offset risk and take advantage of falling stock prices. Short selling involves selling borrowed shares with the hope of buying them back at a lower price, while hedging involves minimizing exposure to price fluctuations by having opposing positions in different assets.  
 

Having strategic shorts in a portfolio can help offset losses in a market downturn and allow for reinvestment at lower prices. Note that the risk of losses still exists.  
 

Another well-known strategy is to diversify. Diversification is a risk management technique used to reduce risk by spreading investments across different assets and directions. One way to diversify is by trading in a range of shares, but another way is to use Contract for Difference (CFD) to diversify across asset classes. CFDs offer an advantage because they do not require ownership of the underlying asset. 
 

CFDs, or Contracts for Difference, are financial derivatives that allow traders to speculate on the price movements of underlying assets, such as shares, commodities, currencies, or indices, without owning the underlying asset. 
 

When the banking sector crisis started, gold prices experienced a significant rally. This is due to a global sentiment that gold is considered investment during an economic crisis. The banking sector crisis led to a surge in demand for safe-haven assets such as gold and Treasury bonds. As a result, gold prices hit their highest levels in a year during March. 
 

For those who were keeping a close eye on the global markets and remained nimble, a profitable trade would have been a long position in spot gold during this period. This is because fears of a repeat of the global financial crisis led to a surge in demand for gold, as it is seen as a safe asset to invest in during uncertain times. With this increased demand, gold prices rose and presented an opportunity for investors to profit from this trend. 

Gold surged. 



Source: Infront Terminal

Tech emerges as a safe-haven 
 

Traditionally, many cautious investors considered bank shares as safe havens during times of uncertainty because of their relatively low valuations. In contrast, tech shares were viewed as riskier due to their higher valuations. However, this dynamic has shifted with investors having come to appreciate that profitable technology companies have limited exposure to the financial sector, are flush with cash, and are benefitting from fast-growing trends such as artificial intelligence that won't be slowed down by a bank crisis. 
 

During mid-March, we saw the downfall of several banks such as Silicon Valley Bank, Signature Bank, and Silvergate Bank. However, there was a significant rally in strong tech shares which received a boost from the news that the Biden administration would require TikTok to be sold or banned entirely if its Chinese owner did not exit their stakes. As a result, Meta's shares increased by 4%, while Snap and Pinterest shares saw gains of 4% and 7%, respectively. 
 

However, the most significant factor driving tech shares returns in the past month was the significant decline in bond yields, as well as the expectation that the Fed will cut benchmark rates multiple times by the end of the year due to the fallout from the largest bank failure since 2008.  
 

Tech shares vs Banks Q1 2023 



Source: Infront Terminal  
 

Investors who were able to look beyond the banking crisis and didn't let fear hold them back could have potentially made significant profits by taking long positions in certain tech shares, especially the mega-cap tech shares like Apple and Microsoft. These tech giants have performed well in the past and are expected to continue to do so, as banks face greater regulatory scrutiny and the market is filled with more uncertainty. 
 

As the market adapts to these changes, investors who take a calculated risk and invest in tech shares may reap the benefits. In addition, the recent decline in bond yields and expectations of the Federal Reserve cutting benchmark rates multiple times by the end of the year could further boost tech shares returns. This is because tech shares are highly sensitive to changes in borrowing costs, and any decrease in rates may benefit their growth potential. 
 

Overall, it's important for investors to keep an eye on market trends and adapt their investment or trading strategy accordingly. While the banking crisis may have caused panic in some, there were and still are profitable opportunities in the market for those who are willing to take a calculated risk and look beyond the immediate uncertainties. 
 

Don’t miss out on these market movements. Open a trading account with ThinkMarkets today
 

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

Related articles:

Join the hype around the launch of the new ME...

By Alejandro Zambrano

06/07/2023

Top 5 AI Stocks in 2023

By Carl Capolingua

13/06/2023

US interest rates in balance as traders await...

By Carl Capolingua

10/05/2023

Charts show Banking Crisis echoing GFC meltdown

By Carl Capolingua

04/05/2023

Gold and Silver's time to shine amidst market...

By Carl Capolingua

05/04/2023

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Back to top