March 31, 2023

Great Indian Mutiny

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Wall Street is dragged down by plummeting bank stocks and jittery jobs reports

  • Investors eyed for Friday’s jobs report
  • Bank shares falter after SVB announces the sale of its shares
  • General Electric rises after repeat expectations
  • Indices down: Dow 1.85%, Standard & Poor’s 1.66%, Nasdaq 2.05%

(Reuters) – Wall Street’s three major stock indexes closed lower on Thursday, with bank stocks causing the biggest drag while investors also worried that Friday’s jobs report could spur the Federal Reserve to raise interest rates further.

The bank’s S&P 500 (.SPXBK) ended down 6.6% after hitting its lowest level since mid-October. Investors fled the sector after lender SVB Financial Group (SIVB.O) to the tech industry launched a share sale to prop up its balance sheet due to falling deposits from start-ups struggling for financing.

The Nasadaq finished down more than 2% while the S&P 500 and Dow lost nearly 2%.

Investors were also stressing ahead of Friday’s US non-farm payroll report for February with expectations of big pay increases fueling inflation fears. Federal Reserve Chairman Jerome Powell this week exacerbated concerns about upcoming interest rate hikes aimed at combating stubbornly high inflation.

Traders were betting that the chances of a 50 basis point rate hike at the Fed’s March meeting were about 60%, according to CME Group’s FedWatch tool, up sharply from a probability of 31% ahead of Powell’s appearances Tuesday and Wednesday in Congress.

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“There’s a lot of anticipation around the jobs report tomorrow. We’re going to get a ton of data in the next week and a half,” said Mona Mahajan, chief investment strategist, Edward Jones, New York, also citing inflation and retail sales. All reports are issued prior to the next meeting of the Federal Reserve, which ends on March 22nd.

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Earlier Thursday, Labor Department data showed initial claims for state unemployment benefits rose 21,000 to a seasonally adjusted 211,000 for the week ending March 4, compared with economists’ forecasts for 195,000 claims.

While last week’s increased jobless claims may be “the first sign that the labor market may be showing signs of abating,” Mahajan wants to see “more data points to determine direction.”

The February Nonfarm Payrolls report is expected to show an increase in payrolls of 205,000 after January’s blowout of 517,000, which already had the markets getting ready for a US rate hike.

Any evidence that last month’s “massive job count was not an anomaly” would “reinforce market concerns about the Fed’s response to it,” said Mark Luchini, chief investment analyst at Janie Montgomery Scott in Philadelphia.

Mahajan, who will closely watch the wage data, said that with wages expected to rise in February by 4.7% compared to 4.4% in January, “it looks like it’s going in the wrong direction even if we meet expectations.”

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, US, March 2, 2023. REUTERS/Brendan McDiarmid

The Dow Jones Industrial Average fell 543.54 points, or 1.66%, to 32,254.86 points, the Standard & Poor’s 500 lost 73.69 points, or 1.85%, to 3,918.32 points, and the Nasdaq Composite Index fell 237.65 points, or 2.05%, to 11,338.36.

The biggest constraint on the S&P 500 came from the financial sector (.SPSY), followed by information technology (.SPLRCT).

The financial benchmark ended the day down 4%, posting its largest one-day percentage loss since June 2020. S&P Bank (.SPXBK) sub-sector turned negative for the year-to-date Thursday, down 4.7% so far. 2023. Thursday was the first full day trading below the 200-day moving average since January 5th.

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All 11 major industry sectors on Standard & Poor’s ended the session lower. Utilities (.SPLRCU), down 0.8%, was the smallest loser. Consumer goods (.SPLRCS) was next, down 0.95%, with health care (.SPXHC) falling 1%.

With investors already concerned that the Fed could tighten excessively and cause a recession and hurt bank lending demand, “there is a ‘sell first ask questions later’ element to contagion risk,” SVB Financial’s SVB Financial said to banks at Janney Montgomery Scott.

SVB closed down 60% at $106.04 after falling at one point about 63% and reaching its lowest level since August 2016 after the bank cut its 2023 outlook and launched a share sale to shore up its balance sheet.

Also weighing on the sub-index was Signature Bank (SBNY.O), which fell 12% to $90.76 after its crypto-bank peer Silvergate Capital Corp. (SI.N) revealed plans for a voluntary liquidation. Silvergate closed down 42%, at $2.84.

On the bright side, General Electric (GE.N) closed up more than 5% after the industrial group reiterated its 2023 earnings forecast.

Low issues outnumbered high issues on the NYSE by a ratio of 5.12 to 1; On the Nasdaq, the ratio was 3.83 to 1 in favor of declining stocks.

The S&P 500 posted 5 new highs in 52 weeks and 22 new lows; The Nasdaq Composite recorded 58 new highs and 289 new lows.

And 11.69 billion shares were traded on US exchanges, compared to an average of 10.95 billion shares in the last 20 sessions.

Additional reporting by Sinead Caro in New York, Amrutha Khandekar, Shristi Achar A and Yohan M Cherian in Bengaluru and Medha Singh Editing by Vinay Dwivedi, Sriraj Kaluvella and David Gregorio

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