Wall Street’s three major stock indexes closed lower on Thursday, with bank stocks creating the biggest drag while investors also worried that Friday’s jobs report could spur more aggressive interest rate hikes from the Federal Reserve. The S&P 500’s bank index finished down 6.6% after hitting its lowest level since mid-October. Investors fled the sector after tech-industry lender SVB Financial Group launched a share sale to shore up its balance sheet due to declining deposits from startups struggling for funding. Markets are also somewhat concerned with the release of Friday’s U.S. non-farm payrolls report for February with expectations for large wage increases fueling inflation worries. Fed Chair Jerome Powell this week exacerbated concerns about upcoming interest rate hikes aimed at fighting stubbornly high inflation.
Earlier on Thursday, Labor Department data showed initial claims for state unemployment benefits rose 21,000 to a seasonally adjusted 211,000 for the week ended March 4, compared with economist forecasts for 195,000 claims. The February non-farm payrolls report is expected to show a payrolls increase of 205,000 after January’s blowout 517,000 figure, which had already led markets to brace for a bigger U.S. rate hike.
SVB Financial Group shares plunged more than 62% on Thursday, a day after the lender launched a $1.75 billion share sale to shore up its balance sheet and navigate declining deposits from startups struggling for funds amid increased spending. The shares posted their biggest loss in 25 years as the bank said venture capital funding could remain constrained in the near term, while Chief Executive Greg Becker said cash burn by clients increased in February. A crucial lender for early-stage businesses, SVB is the banking partner for nearly half of U.S. venture-backed technology and healthcare companies that listed on stock markets in 2022.
Shares of First Republic, a San Francisco based bank, sank more than 16.5% after hitting its lowest level since October 2020, becoming the second-biggest decliner in the S&P 500 index. Zion Bancorp dropped more than 12% and the SPDR S&P regional banking ETF (KRE) slid 8% after hitting its lowest point since January 2021. Major U.S. banks were also hit, with Wells Fargo & Co down 6%, JPMorgan Chase & Co down 5.4%, Bank of America Corp 6% lower and Citigroup Inc fell 4% lower. Thursday’s slump evaporated over $80 billion in stock market value from the 18 banks making up the S&P 500 banks index, including a $22 billion drop in the value of JPMorgan. Also weighing on the sub-index was Signature Bank, which tumbled 12% to $90.76 after its crypto-bank peer Silvergate Capital Corp disclosed plans to voluntarily liquidate. Silvergate closed down 42% to $2.84.
The Dow Jones Industrial Average fell 543.54 points, or 1.66%, to 32,254.86, the S&P 500 lost 73.69 points, or 1.85%, to 3,918.32 and the Nasdaq Composite dropped 237.65 points, or 2.05%, to 11,338.36. The biggest drag on the S&P 500 came from the financial sector followed by information technology. The financials index ended the day down 4%, its deepest one-day percentage loss since June 2020. The S&P bank sub-sector turned negative for the year-to-date on Thursday, last down 4.7% so far for 2023. Thursday was its first full day trading below its 200-day moving average since Jan. 5. All the S&P’s 11 major industry sectors ended the session lower. Utilities, down 0.8% was the smallest decliner. Consumer staples was the next smallest, down 0.95%, with healthcare down 1%. One positive piece of news Thursday saw, General Electric closed up more than 5% after the industrial conglomerate reiterated its 2023 earnings forecast.
The dollar dipped on Thursday after data showed U.S. jobless claims rose more than expected last week, raising hopes that a softening labor market will reduce the likelihood of the Federal Reserve reaccelerating the pace of its rate hikes. The dollar was last down 0.31% against a basket of currencies at 105.28. It is down from a three-month high of 105.88 on Wednesday. The euro gained 0.31% to $1.0577 and is up from a two-month low of $1.0524 on Wednesday. The yen gained a day before the Bank of Japan concludes its final meeting with Governor Haruhiko Kuroda. The Japanese central bank is expected to end its long-term yield control policy this year but make no major changes this week. The dollar fell 0.87% against the Japanese currency to 136.216 yen. It reached a three-month high of 137.90 on Wednesday. Sterling was one of the best performers on Thursday, rising 0.58% to $1.1911. It fell to a more than three-month low of $1.18050 on Wednesday.
Shorter-dated U.S. Treasury yields declined on Thursday, with the release of the latest weekly initial jobless claims data and the negative sentiment seen on Wall Street filtered through to interest rate markets as the yield on 10-year Treasury notes was down 5.3 basis points at 3.923%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 17.5 basis points at 4.891% and poised for its biggest one-day basis point drop since January 6. the spread between the 2 and the 10-year yields narrowed from -110 points to -95 points yesterday as markets responded with the shorter end unwinding some of the risk added this week following on from Fed Chair Jerome Powell’s testimony.
Oil prices continued to fall sliding about 1% to a two-week low on Thursday on increased worries the U.S. Federal Reserve may go too far with its interest rate hikes to control inflation, which could cause a recession and reduce future oil demand. Brent futures fell $1.07, or 1.3%, to settle at $81.59 a barrel, their lowest close since Feb. 22. U.S. West Texas Intermediate (WTI) crude fell 94 cents, or 1.2%, to settle at $75.72, their lowest close since Feb. 27. old jumped on Thursday as the dollar retreated, after data showed U.S. jobless claims grew more than expected last week, providing some hope to investors that the Federal Reserve’s interest rate hikes could be less aggressive than feared. Spot gold gained 1.1% to $1,832.75 per ounce, as U.S. gold futures rose 0.9% to settle at $1,834.60. In other precious metals markets spot silver gained 0.6% at $20.12 per ounce, platinum rose 0.8% to $945.02 and palladium added 2.1% to $1,401.53.