Spring is often thought of as an uplifting time, marked by growth and renewed hope as we emerge from the
long months of winter and look ahead to the rest of year. Investors saw signs of such renewed hope in recent
weeks, especially on the inflation front as several inflation measures showed signs of improvement. We also
saw markets stabilize after the surprisingly fast collapse of Silicon Valley Bank. But although it initially appeared
that a stable spring would set the markets up for a calm, quiet summer, a flurry of recent activity is testing
investor sentiment.

Another bank collapse also put investors a bit on edge last week as JPMorgan—with financial support from the
FDIC—will acquire First Republic Bank, the second biggest bank to fail in U.S. history. The story was similar to
Silicon Valley Bank, with a concentrated and wealthy deposit base and mismanaged bond portfolio. These
unique characteristics and a government backstop make any other large bank failures unlikely in the near term,
though sentiment around bank conditions is fragile.

In other significant news, Treasury Secretary Janet Yellen warned that the date when the U.S. might not be
able to pay its bills is fast approaching, if the debt ceiling is not raised or suspended soon. With the time for
debate shrinking, the Treasury encouraged Congress not to wait until the last minute to resolve the debt ceiling
issue (as they did in 2011). This urgent warning may actually provide a silver lining for investors, however, if
Congress is pushed to resolve the issue sooner and avoids a summer-long Congressional debate. Markets
may stabilize once the debt ceiling issue is resolved and the Fed ends its current interest rate tightening

Looking ahead, we see several signs of health for the economy and markets, such as delinquency rates on
consumer loans still below pre-COVID-19 levels. Although business hiring intentions have slowed and
consumers are pulling back on spending, we do not see the types of cracks we observed in the years leading
up to the Great Financial Crisis. We may not have a clear path for growth just yet, with some banks still under
duress and the debt ceiling yet unresolved, but we believe the upward trajectory remains thanks to a relatively
healthy consumer base.

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