Topline
Major indexes fell on Friday as bank stocks struggled following the sudden collapse of one of Silicon Valley’s biggest lenders, which launched a failed bid to help shore up cash during the challenging economy and ushered in the stock market’s worst week of the year.
Traders work on the floor of the New York Stock Exchange.
Key Facts
Though it at one point surged on Friday morning, the Dow Jones industrial average ultimately fell 345 points, or 1.1%, to less than 31,910 on Friday—pushing weekly losses to more than 1,480 points, or more than 4%, in the index’s worst one-week stretch since June.
The S&P 500 and tech-heavy Nasdaq shed 1.4% and 1.8% on Friday—pushing weekly losses to 4.6% and 4.7%, respectively.
Dragging down sentiment Friday afternoon, the Federal Deposit Insurance Corporation announced Silicon Valley-based startup lender SVB Financial had been shuttered by a California regulator shortly after reports that the bank’s parent company hired advisors to explore a possible sale.
Just two days earlier, the bank said it sold $21 billion of its securities portfolio and hoped to raise nearly $2.3 billion to help bolster its financial position amid a “very challenging” market and interest rate environment that has led to lower customer deposits—an announcement that pushed shares down a staggering 60%.
Bank stocks—also reeling from the sudden collapse of crypto bank Silvergate this week—plunged on the news, with JPMorgan Chase, Bank of America and Wells Fargo falling about 6% apiece on Thursday, and the S&P Banks Select Industry Index plummeting nearly 15% this week.
In an email, Vital Knowledge founder Adam Crisafulli called Silvergate and SVB “victims of the same phenomenon,” as the Federal Reserve’s campaign to fight inflation “extinguishes froth from parts of the economy with the most excess”—including crypto and tech.
Crucial Quote
“Banks are the most important sector of the market,” Crisafulli says, noting sentiment in the industry can spread to other sectors because of banking’s role in financing operations, and also pointing out the focus on markets has “ominously” shifted to the health of institutions, with the abrupt banking problems spurring concerns of more-stringent financial regulation.
Tangent
A mixed jobs report on Friday morning did little to quell investor concerns. According to the Labor Department, total employment increased by 311,000 jobs in February—significantly more than the 225,000 figure economists were expecting. However, the unemployment also unexpectedly ticked up from 3.4% to 3.6%, signaling more Americans have started looking for work. “It’s no longer accurate to say without reservation that the labor market is a bright spot in the economy,” Glassdoor chief economist Aaron Terrazas said after the report.
Surprising Fact
“The deterioration in market breadth this week goes well beyond the banking space,” says Adam Turnquist of LPL Financial. As of Friday afternoon, less than half of the stocks in the S&P were trading above their 200-day moving average—a highly watched technical indicator. That’s far less than the high of 79% earlier this month, notes Turnquist.
Further Reading
SVB Shut Down By California Regulator (Forbes)
Labor Market Added 311,000 Jobs In February—But Unemployment Rate Unexpectedly Rose To 3.6% (Forbes)
Crypto Bank Silvergate Will Shut Down Amid Financial Peril (Forbes)
Source: https://www.forbes.com/sites/jonathanponciano/2023/03/10/dow-plunges-nearly-1500-points-in-worst-week-since-june-as-bank-stocks-collapse/