A Crisis Delivers Opportunities

So much has happened since early March that I barely know where to start, except to assert that the recent bank failures and the subsequent Federal Reserve reaction offer scattered opportunities. To me, they are not ear-splitting alarms.

- Jeffrey R. Kosnett

That is because these events stand to facilitate the breaks in inflation and interest rates that will reward (or already are rewarding) bond and income investors for courage and patience. Following the recent bank failures, FS Investments chief market strategist Troy Gayeski reset his odds that interest rates have peaked, or will soon peak, from a 50-50 chance to 80-20 or 90-10. He and others believe the bank mini-crisis raises the chance of a (mild) recession in 2023 but lacks the power to turn financial and economic conditions truly ugly, 2008-style. Matt Kelley, head of stock research at KBW, a research firm covering banks and financial companies, now says of the markets, "We are starting to get our footing, but there is a lot to be determined."

I do not expect bank stocks and other credit investments to storm back 40% or even 100%, as many did post-crash 15 years ago. And the major stock indexes, such as the S&P 500, will be stuck in a holding pattern-at best for a few months. But if your goals are to collect robust income and recover some more of 2022's principal losses, these are timely ideas.