Investors sold U.S. stocks and piled into Treasuries as they were rocked by worries about the value of U.S. banks’ bond portfolios, while preparing a payrolls report that will affect the policy of the Federal Reserve.
The blue-chip S&P 500 stock index closed down 1.8% on Thursday and the tech-heavy Nasdaq Composite fell 2.1%. Both indexes posted their biggest declines since Feb. 21.
The S&P 500 financials sub-index fell 3.9% on concerns about the value of banks’ holdings of Treasuries and other debt instruments. The move follows crypto-focused Silvergate Bank’s announcement on Wednesday that it would end amid depositor withdrawals and signs that Silicon Valley Bank was planning a stock sale to bolster its capital.
Shares of JPMorgan Chase, Bank of America, Citigroup and Wells Fargo – the four largest US lenders by assets – each fell 4.1% to 6.2%.
The pullback in financial stocks came as traders piled into U.S. government debt, with yields on short-term Treasuries falling sharply. Yields on interest-rate-sensitive two-year Treasury notes fell 19 basis points to 4.89%, while those on 10-year Treasury notes fell 5 basis points to 3.92% . Yields move inversely to bond prices.
The moves came ahead of a U.S. payrolls report on Friday, with data that provides insight into the direction of the economy at a time of high inflation.
“Hanging on to bets on another interest rate hike is now much less attractive and not worth the risk of being surprised by weak labor market data tomorrow,” said Edward Al-Hussainy, senior analyst at Columbia Threadneedle. “The path to least resistance today was to take profits on those bets and reduce market exposure.”
Last month’s jobs report was surprisingly strong, raising investor anticipation for higher interest rates amid hawkish rhetoric from the Fed.
“Good macro news equals bad market news,” said Florian Ielpo, head of macro and multi-asset portfolio manager at Lombard Odier Investment Managers.
He added that another strong reading of payrolls “would confirm that more is needed to dampen labor market dynamism.”
In his semi-annual testimony to Congress this week, Fed Chairman Jay Powell said the U.S. central bank was open to returning to more aggressive interest rate hikes, but stressed that “no decision” has been made. had been taken.
Data released on Thursday showed initial jobless claims in the United States rose to 211,000 last week, above expectations of 192,000 and the biggest increase since October. It was the first time in eight weeks that unemployment claims exceeded 200,000.
“Even after the increase reported today, the level of jobless claims remains very low . . . most companies are still hiring or retaining employees,” said Joshua Shapiro, chief US economist at consultancy Maria Fiorini. Ramirez.
The dollar index, which measures the US currency against a basket of six peers, fell 0.4%. The index gained 1.8% during the month as US government debt yields rose and traders raised their forecasts for the peak in the federal funds rate.
European stocks struggled to advance as investors digested the data. The region-wide Stoxx 600 closed down 0.2%, Germany’s Dax was flat and France’s CAC 40 lost 0.1%.
London’s FTSE 100 closed 0.6% lower as mining stocks fell on fears a stronger dollar could dampen profits.
In Asia, the Chinese CSI 300 fell 0.4% after weaker than expected Chinese inflation data. Consumer prices policy declined.
Oil prices fell for the third day in a row, with international benchmark oil Brent and its US equivalent West Texas Intermediate falling 1.2% and 1.3% respectively.
Additional reporting by Kate Duguid in New York