Dow logs new 2023 low as bank sector tumbles, investors await monthly employment report

What drove markets

U.S. stocks gave up early morning gains to close sharply lower as investors fled the bank sector following SVB Financial Group’s
SIVB,
-60.41%
asset sale and the announcement of Silvergate Capital Corp.’s
SI,
-42.16%
decision to wind down is crypto banking operations.

See: Bank carnage drags stocks lower as SVB Financial shares plunge

“This week we’ve had two real eye opener events [in the bank sector],” said Steve Sosnick, chief strategist at Interactive Brokers. The first one he described was Silvergate, which investors seemed able to shrug off as “a unique set of circumstances,” he said. But when looking at spillover to Signature Bank
SBNY,
-12.18%
and carnage in shares of SVB, which finances tech startups, he said worries “really hit home for a lot of people.”

Other financial stocks also tumbled, with the KBW Bank Index
BKX,
-7.70%
slumping 7.7%, booking its worst day since 2020, according to Dow Jones Market Data. SPDR S&P Bank ETF
KBE,
-7.28%
fell 7.3%, while the the S&P 500’s financial sector shed 4.1%.

See: SVB Financial’s stock suffers biggest drop in 25 years after large losses on securities sales, equity offering

Treasury yields fell with the yield on the 2-year note BX:TMUBMUSD02Y declined 16.4 basis points to 4.9% from 5.064% on Wednesday, the largest one-day decline since Jan. 6. 

Sosnick told MarketWatch that what happened on Thursday was the classic “flight-to-safety trade,” meaning investors pulled money out of risky assets, but put it in the safest possible assets they can find, which in this case ended up being short-term Treasurys.

Also Thursday, the number of Americans who applied for unemployment benefits in early March jumped to a 10-week high of 211,000, the highest level since Christmas. That’s higher than the 195,000 new applicants that economists polled by the Wall Street Journal had anticipated.

Economists said the data suggested that the labor market might be starting to slow, which is seen as a necessary prerequisite for driving inflation back to the Fed’s 2% target.

“The labor market might just be on the cusp of an inflection point,” said Peter Boockvar, chief investment officer of Bleakley Financial Group, in emailed commentary.

See: Wall Street sees smaller 225,000 increase in U.S. jobs in February. A much larger gain might spur stiffer Fed rate hike.

Investors are now looking ahead to Friday’s closely watched February jobs report from the Department of Labor. Economists polled by the Wall Street Journal expect 225,000 jobs were created last month after 517,000 new jobs were created in January, a number that was much higher than economists had anticipated.

“If we do get the expected 200,000, or really anything between say 180,000 and 240,000, this would be a return to the prior trend and would signal that last month was indeed a one-off,” said Brad McMillan, chief investment officer of Commonwealth Financial Network, in emailed comments.

“That would be perceived as a positive by the Fed and markets, suggesting that inflation may start moderating again but is still high enough to allow for continued economic growth.”

See: Bad economic data won’t be good for stocks, but good data will be even worse, this JPMorgan technical strategist says

The Russell 2000
RUT,
-2.81%,
the small-cap index, closed Thursday below its 50-day moving average for the first time since January 9, 2023, according to Dow Jones Market Data.

Stocks also suffered earlier in the week after Fed Chair Powell said during testimony on Capitol Hill that rates would likely need to rise even further than market participants had expected. However, the main indexes saw some relief a day later when he told policymakers that no decision has been made on the size of the next rate hike.

Companies in focus

• Shares of Silicon Valley Bank parent company SVB Financial Group ended more than 60% lower on Thursday after the company disclosed large losses from securities sales and a stock offering meant to provide a boost to its balance sheet. SVB booked its biggest one-day selloff since the dotcom boom, while its trading was halted for volatility multiple times, according to Dow Jones Market Data.

• Signature Bank shares dropped 12.2% in the aftermath of a decision to wind down fell crypto-lender Silvergate Bank. The drop comes despite moves by Signature Bank to wind down its exposure to crypto amid healthy despots at the company.

• Uber Technologies Inc.
  UBER,
  -4.97%
  shares dropped 5% on Thursday after Bloomberg reported on Wednesday that the ride-hailing food and package delivery company was considering a spinoff of its struggling Uber Freight business.

• Silvergate Capital Corp. shares slumped 42.2% after the La Jolla. Calif-based lender said it would wind down operations and liquidate its crypto-friendly lender Silvergate Bank.

• Credit Suisse Group AG’s U.S-listed shares
  CS,
  -4.48%
  fell 4.5% after the Swiss bank said publication of its annual report for 2022 would be delayed due to a late call from the Securities and Exchange Commission, which questioned its 2019 and 2020 cash-flow statements.

• General Motors Co.
  GM,
  -4.88%
  slipped 4.9% after the automaker announced a voluntary buyout program that’s expected to lead to an employee separation charge of $1.5 billion.

— Jamie Chisholm contributed to this article