Wall Street’s three main stock indexes finished down on Thursday, with bank stocks being the greatest drag, while investors were also concerned that Friday’s employment data might prompt the Federal Reserve to raise interest rates more aggressively.
The S&P 500 bank index closed 6.6 percent lower after reaching its lowest level since mid-October. Investors left the sector when SVB Financial Group, a tech-industry lender, proposed a share sale to shore up its balance sheet owing to falling deposits from companies seeking investment.
The Nasdaq finished down more than 2%, while the S&P 500 and Dow were also down close to 2%.
Before the US non-farm payrolls data for February came out, the markets were very nervous. Fears of inflation were fueled by predictions of big pay raises.Last week, Fed Chair Jerome Powell compounded fears about forthcoming interest rate rises to combat persistently high inflation.
According to CME Group’s FedWatch tool, traders were betting on a 50-basis-point rate rise at the Fed’s March meeting, up from a likelihood of 31 percent before Powell’s Tuesday and Wednesday congressional hearings.
“The employment report is widely anticipated for tomorrow. We’ll receive a lot of data in the next week and a half. According to Mona Mahajan, senior investment strategist at Edward Jones in New York, inflation and retail sales statistics are all expected out before the next Fed meeting, which concludes on March 22.
Earlier on Thursday, the Labor Department reported that initial claims for state unemployment benefits increased by 21,000 to a seasonally adjusted 211,000 for the week ending March 4, above analyst predictions of 195,000 claims.
Although rising unemployment claims last week may be “the first evidence the labor market may be easing,” Mahajan wants to see “additional data points to establish a pattern.”
The February non-farm payrolls data is projected to show a 205,000 gain following January’s massive 517,000 surge, which had already prompted markets to prepare for a larger US rate hike.
Any evidence that last month’s “gigantic payrolls figure was not an outlier” would “reinforce the market’s fears about the Fed’s reaction to it,” according to Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
Furthermore, with salary rises predicted to grow 4.7 percent in February, compared to 4.4 percent in January, “it seems like it’s going in the wrong direction even if we simply match expectations,” said Mahajan, who will be carefully monitoring wage statistics.
The Dow Jones Industrial Average sank 543.54 points, or 1.66 percent, to 32,254.86, the S&P 500 dropped 73.69 points, or 1.85 percent, to 3,918.32, and the Nasdaq Composite slid 237.65 points, or 2.05 percent, to 11,338.36.
The banking sector was the largest drag on the S&P 500, followed by information technology.
The financials index finished the day down 4%, its worst one-day percentage drop since June 2020. On Thursday, the S&P bank sub-sector went negative for the year to date, down 4.7 percent so far in 2023. Thursday was the first full day since January 5 that it traded below its 200-day moving average.
The S&P’s 11 main industrial sectors all finished the session down. The lowest decliner was utilities, which fell 0.8 percent. Consumer staples were down 0.95 percent, followed by healthcare, which fell 1 percent.
With investors already anxious that the Fed could over-tighten, causing a recession and reducing bank lending demand, “there’s an element of’sell first, ask questions later’ with respect to contagion risk,” said Luschini of Janney Montgomery Scott of SVB Financial for banks.
SVB fell 60 percent to $106.04 after plunging as much as 63 percent at one stage and reaching its lowest level since August 2016 after the lender lowered its 2023 forecast and initiated a share sale to shore up its balance sheet.
Signature Bank fell by 12 percent to $90.76 after its peer, Silvergate Capital Corp, said it was going to close on its own. This made the sub-index go down.Silvergate fell 42 percent to $2.84.
On the plus side, General Electric rose more than 5% as the industrial behemoth restated its profitability prediction for 2023.
On the NYSE, decliners outweighed advancers by a 5.12-to-1 ratio; on the Nasdaq, decliners outpaced advancers by a 3.83-to-1 ratio.
The S&P 500 set five new 52-week highs and 22 new lows, while the Nasdaq Composite set 58 new highs and 289 new lows.
On American exchanges, 11.69 billion shares were traded, compared to the 10.95 billion average for the previous 20 sessions.