March 9 (Reuters) – All three major Wall Street stock indexes closed lower on Thursday, with banking stocks creating the biggest drag as investors also feared Friday’s jobs report could lead to rate hikes more aggressive interest rates from the Federal Reserve.
The S&P 500 Banking Index (.SPXBK) ended down 6.6% after hitting its lowest level since mid-October. Investors fled the sector after tech industry lender SVB Financial Group (SIVB.O) launched a stock sale to shore up its balance sheet due to falling deposits from struggling startups for funding.
The Nasadaq ended down more than 2% while the benchmark S&P 500 and the Dow lost nearly 2%.
Investors were also stressed ahead of Friday’s U.S. nonfarm payrolls report for February, with expectations of large wage increases fueling inflation concerns. Fed Chairman Jerome Powell this week heightened concerns about upcoming interest rate hikes aimed at tackling stubbornly high inflation.
Traders were betting the odds of a 50 basis point rate hike at the Fed’s March meeting were around 60%, according to CME Group’s FedWatch tool, up sharply from a probability 31% ahead of Powell’s Tuesday and Wednesday appearances in Congress.
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“There’s a lot of anticipation surrounding tomorrow’s jobs report. We’re going to get a slew of data in the week and a half ahead,” said Mona Mahajan, senior investment strategist, Edward Jones, New York, also citing inflation and retail sales. all reports must be released before the next Fed meeting which ends on March 22.
Earlier 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 economists’ forecasts for 195,000 requests.
While last week’s increase in jobless claims could be “the first sign that the labor market may be showing signs of easing”, Mahajan is keen to see “more data points to establish a trend.”
February’s nonfarm payrolls report is expected to show payrolls rising by 205,000 after January’s soaring 517,000 figure, which had already led markets to brace for a bigger US rate hike.
Any evidence that “last month’s gigantic payroll number was not an anomaly” would serve to “reinforce market concerns around the Fed’s response,” said Mark Luschini, chief investment strategist at Janney Montgomery. Scott in Philadelphia.
And with February pay increases set to rise 4.7% from January’s 4.4%, “it feels like it’s going in the wrong direction even though we’re just meeting expectations,” said Mahajan, who will be watching salary data closely.
The Dow Jones Industrial Average (.DJI) fell 543.54 points, or 1.66%, to 32,254.86, the S&P 500 (.SPX) lost 73.69 points, or 1.85%, to 3,918.32 and the Nasdaq Composite (.IXIC) fell 237.65 points, or 2.05%, to 11,338.36.
The biggest drag on the S&P 500 came from the financial sector (.SPSY) followed by information technology (.SPLRCT).
The financial index ended the day down 4%, its biggest one-day percentage loss since June 2020. The S&P banking sub-sector (.SPXBK) turned negative for the year to date on Thursday, last 4.7% decline so far for 2023. Thursday was its first full day of trading below its 200-day moving average since Jan. 5.
All of the S&P’s 11 major industry sectors ended the session lower. Utilities (.SPLRCU), down 0.8%, was the smallest decline. Basic Consumption (.SPLRCS) was the second smallest, down 0.95%, followed by Health (.SPXHC) down 1%.
With investors already concerned that the Fed could tighten too much and cause a recession and hurt demand for bank loans, “there is an element of ‘sell first ask questions later’ when it comes to the risk of contagion,” Luschini told Janney. Montgomery Scott.
SVB closed 60% lower at $106.04 after at one point falling around 63% and hitting its lowest level since August 2016 after the lender cut its 2023 outlook and launched a sell-off. actions to consolidate its balance sheet.
Signature Bank (SBNY.O) also weighed on the sub-index, which fell 12% to $90.76 after fellow crypto banker Silvergate Capital Corp (SI.N) announced plans to voluntarily liquidate . Silvergate closed down 42% at $2.84.
On the positive side, General Electric Co (GE.N) closed more than 5% higher after the industrial conglomerate reiterated its 2023 earnings forecast.
Falling issues outnumbered rising ones on the NYSE by a ratio of 5.12 to 1; on the Nasdaq, a ratio of 3.83 to 1 favored the decliners.
The S&P 500 posted 5 new 52-week highs and 22 new lows; the Nasdaq Composite recorded 58 new highs and 289 new lows.
On the American stock exchanges, 11.69 billion shares changed hands against 10.95 billion on average for the last 20 sessions.
Sinéad Carew reporting in New York, Amruta Khandekar, Shristi Achar A and Johann M Cherian in Bangalore
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