Wall Street’s indices ended Friday down more than 1 percent as investors ran for the exits over fears for the health of US banks after the failure of a high-profile lender to the technology sector, overshadowing last month’s jobs report.
California banking regulators said they closed SVB Financial Group to protect deposits in what was the largest bank failure since the financial crisis. A capital crisis at SVB had already put pressure on bank stocks globally.
SVB had tried but failed to shore up its balance sheet through a stock sale proposed late on Wednesday.
The same day, crypto lender Silvergate Capital said it would have to wind down after huge losses from the FTX Trading Ltd cryptocurrency exchange collapse.
“There’s concern cracks may be appearing in the financial system as a result of the [US] Federal Reserve’s aggressive rate hikes,” said Carol Schleif, chief investment officer at BMO Family Office in Minneapolis. “The fear is whether it’s broader than one industry’s bank and one segment of the economy.”
While many investors looked through their bank holdings for signs of risk, Schleif said that much of the weakness in regional bank stocks stemmed from a “proverbial shoot-first-ask-questions-later situation.”
Photo: AFP
The KBW regional banking index ended the session down 2.4 percent, while the S&P 500 financials index lost 1.8 percent.
Schleif and other investors said they hoped regulations added to the US banking system since the 2008 financial crisis would prevent a similar catastrophe.
Yet still “people are very nervous because they don’t want a repeat,” she said.
The Dow Jones Industrial Average fell 345.22 points, or 1.07 percent, to 31,909.64, the S&P 500 lost 56.73 points, or 1.45 percent, to 3,861.59 and the NASDAQ Composite dropped 199.47 points, or 1.76 percent, to 11,138.89.
All 11 S&P 500 industry sectors lost ground. Real estate, down 3.3 percent, led declines, while consumer staples, the top performer, fell just 0.5 percent.
For the week, the S&P lost 4.55 percent in its biggest weekly percentage decline since September last year, but was clinging to a tiny year-to-date gain of 0.6 percent. The Dow fell 4.44 percent for the week and was down more than 3 percent for the year-to-date, while the NASDAQ declined 4.71 percent this week, but was up more than 6 percent so far this year.
The Cboe Volatility Index, an options-based indicator that reflects demand for protection against stock market declines, closed at a three-month high, up 2.19 points at 24.9, after touching a roughly five-month high during the session.
Investors had expected to end the week with most of their focus on economic data rather than banks.
Before the market opened, the closely monitored non-farm payrolls report showed that the US economy had added more jobs than expected last month, while average hourly earnings rose at a slower 0.2 percent versus 0.3 percent in January and unemployment rose to 3.6 percent.
The data had eased some concerns that the Fed could raise rates by 50 basis points at its meeting this month, after hawkish remarks from Fed Chairman Jerome Powell this week.
However, investors were more focused on uncertainties around the bank system, said John Praveen, managing director and cochief information officer at Paleo Leon in Princeton, New Jersey.
“Whatever positive vibes came out of the labor market report were upstaged by negative vibes from the SVB situation,” Praveen said.
Declining issues outnumbered advancing ones on the NYSE by a 4.75-to-1 ratio; on the NASDAQ, a 4.31-to-1 ratio favored decliners.
The S&P 500 posted no new 52-week highs and 40 new lows, while the NASDAQ Composite recorded 25 new highs and 493 new lows.
On US exchanges 15.17 billion shares changed hands, well above the 11.13 billion average for the past 20 sessions.
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