Bank woes and job-market vigor blamed as U.S. stocks head for worst week of 2023


U.S. stocks traded lower on Friday as investors struggled to parse mixed signals stemming from the February jobs report while Treasury yields and the dollar fell on concerns about contagion in the banking sector from the troubles at Silicon Valley Bank.

What’s happening
  • The Dow Jones Industrial Average DJIA, +0.46% fell by 107 points, or 0.4%, to 32,131.
  • The S&P 500 SPX, +0.30% shed 27 points, or 0.7%, to 3,891.
  • Nasdaq Composite COMP, +0.15% fell by 102 points, or 0.9%, to 11,238.

All three major U.S. indexes are on track to log their biggest weekly pullback of the year, with the S&P 500 down more than 3.5%. the Dow down more than 3.8% and the Nasdaq off nearly 4%. The S&P 500 is on track to fall for the fourth week in five.

What’s driving markets

The U.S. employment report for February showed the labor market continued to grow at a robust pace last month, with the U.S. economy adding 311,000 jobs, more than the 225,000 that economists polled by the Wall Street Journal had expected. Hiring came in greater than expected for the 10th straight month.

Meanwhile, average hourly wages grew by 0.2%, a slower rate than the 0.3% rate economists had expected. It was also less than the 0.3% increase in January. The unemployment rate also ticked higher to 3.6%, helped by an increase in the labor-force participation rate.

See: Jobs report shows strong 311,000 gain in February, puts pressure on Fed for bigger rate hike

Taken together, the report appeared to send “mixed signals” to the market. While the slowdown in wage growth offered some hope that inflation might be cooling, the pace of job creation likely remained too robust for the Fed’s taste, said Jake Jolly, head of investment analysis at BNY Mellon Investment Management.

“This early reaction could certainly be different by the end of the day. There’s enough mixed signals in this data that there’s not a clear directional read,” Jolly said.

“We need to wait and be patient because we’re going to get more material information on inflation next Tuesday,” he added.

Federal Reserve Chair Jerome Powell said earlier this week that the “totality” of jobs and inflation data would determine whether the central bank would go back to raising its policy interest rate by another 50 basis points at its meeting later in March.

After climbing earlier in the week, odds of a 50 basis point interest rate hike by the Fed have moderated over the past 24 hours. Traders now see odds of a 50 basis point rate hike in March as a “coin flip,” according to Jason Pride, chief investment officer of private wealth at Glenmede.

Pride added that while the Fed is likely to interpret Friday’s data as a “step in the right direction” as it continues to battle the worst wave of inflation in four decades, it’s clear that “the Fed still has much to do to get inflation re-anchored around its 2% target, which likely includes several more rate hikes over the next few months.”

The other big story in markets on Friday was the continuing fallout from Thursday’s banking-sector selloff, which saw the SPDR S&P Regional Banking ETF KRE skid 8% for its biggest drop since the early days of the COVID-19 pandemic. The regional-banking ETF was down another 5% early Friday.

Worries about the health of banks contributed to nervousness across markets, after SVB Financial SIVB, said it planned to sell equity to cover a nearly $2 billion hole, caused by the sale of a loss-making U.S. Treasury securities portfolio.

U.S. Treasury Secretary Janet Yellen said she was monitoring “a few banks” including Silicon Valley Bank.

These lingering worries, combined with the impact of the jobs data, continued to weigh on Treasury yields on Friday following a sharp pullback a day earlier, analysts said.

The yield on the 2-year Treasury note TMUBMUSD02Y, 4.725% was down more than 25 basis points at 4.628%. The Treasury yield curve remains massively inverted, which has contributed to banks’ woes. The ICE U.S. Dollar Index DXY, -0.94%, a gauge of the buck’s strength against a basket of rivals, was off 1.1% to 104.1.

Single stock movers
  • SVB Financial Group, the parent of Silicon Valley Bank, saw its shares halted for volatility after falling 60% on Thursday. The bank’s troubles have helped to spark a broader selloff in regional and international U.S. banks that has weighed on the broader market.
  • Barnes & Noble Education Inc. BNED, +20.06% climbed after the company trimmed its third-quarter loss to 48 cents per share from a loss of 71 cents a year ago. 
  • Roblox Corp. RBLX, +2.05% shares rose after the online game platform and game creation system was lifted to a buy from hold at Jefferies.
  • Oracle Corp. ORCL, -2.36% shares slipped after the software company’s fiscal third-quarter revenue fell short of Wall Street expectations. Adjusted earnings were $1.22 per share, compared to $1.13 in the year-ago period.
  • DocuSign Inc. DOCU, -17.50% shares tumbled despite the former work-from-home favorite delivering better-than-expected quarterly results after the close of Thursday’s session.

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