Markets close lower after massive bank failure and rate hike fears

US Treasury Secretary Janet Yellen prepares to testify before the House Committee on Ways and Means on the administration's proposed budget for fiscal year 2024, today on Capitol Hill.

Treasury Secretary Janet Yellen said Friday she’s paying close attention to the financial stress impacting Silicon Valley Bank and other lenders.

“You mention Silicon Valley Bank. There are recent developments that concern a few banks that I’m monitoring very carefully,” Yellen told lawmakers in response to a question at a hearing about the company.

“When banks experience financial losses, it is and should be a matter of concern,” Yellen said during the House Ways and Means Committee hearing. 

SVB Financial Group is reportedly exploring a sale after selling billions of dollars of assets to make its customers whole and sparking a panic on Wall Street this week.

Reuters and CNBC, citing people familiar with the matter, reported that the financially strapped bank was considering a potential sale to a larger institution. SVB didn’t immediately respond to CNN’s request for comment. 

Shares of SVB were halted Friday morning after falling more than 60% in premarket trading. The stock tumbled 60% Thursday after the bank said it had to sell a portfolio of US Treasuries and $1.75 billion in shares at a loss to cover rapidly declining customer deposits — essentially facing a run on the bank. 

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Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee on March 7 in Washington, DC.

Market participants are betting the Federal Reserve will now approve a quarter-point rate hike at its next policymaking meeting on March 21-22, according to the CME FedWatch tool.

That’s a reversal from Tuesday, when hawkish comments from Fed Chair Jerome Powell caused expectations to flip, with markets moving to anticipate a half-point rate hike over the quarter-point that had been priced in for the past few weeks.

Attention now turns to next week’s inflation reports, with the Consumer Price Index due on Tuesday morning and the Producer Price Index on Wednesday. These are the last pieces of major economic data that Fed officials will review before their two-day meeting.

“To be sure, next week’s CPI and PPI reports, should they come in hotter than expected, could push the 50 basis point [half point] bet higher, but this morning’s print gives the Fed breathing room,” said Quincy Krosby, chief global strategist at LPL Financial.

Investors were mostly reacting to a less-than-scorching jobs number and slowing wage growth, which offered hope that overall inflation may be decelerating.

The US Treasury Department building is seen in Washington, DC, on January 19.

The Treasury Department told CNN on Friday it’s monitoring the situation as financial pressure at the parent of Silicon Valley Bank raise concerns about the broader health of America’s banks.

“Treasury is aware of recent developments. The Department will remain in touch with regulators as appropriate,” a Treasury spokesperson said in a statement.

The Federal Reserve declined to comment.

Shares of SVB Financial Group were halted Friday morning pending news. The lender, which caters to tech start-ups, saw its share price plummet by 60% on Thursday after revealing plans to rapidly raise cash to shore up its balance sheet.

Billionaire investor Bill Ackman on Thursday urged the government to consider intervening to protect SVB’s customers.

“The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails and the dominoes continue to fall,” Ackman said in a tweet.

Neither Treasury nor the Fed commented on whether the federal government is considering an intervention.

Worries about SVB helped drive down US stocks on Friday, with the banking sector suffering its worst day in nearly three years.

Crypto-focused lender Silvergate collapsed earlier this week, announcing plans to wind down operations and liquidate. 

The New York Stock Exchange is seen during morning trading on March 8.

US markets were lower on Friday morning after February’s jobs report showed signs of easing inflation.

Payrolls increased last month by 311,000 jobs, blowing past Wall Street’s expectations of 205,000 jobs added, but investors found hope in smaller-than-expected wage gains.

Slowing wage increases could be a sign of cooling inflation and may alleviate some pressure on the Federal Reserve to aggressively hike interest rates at its policy meeting later this month.

Traders are now pricing in a 50% chance that the Fed will raise interest rates by a hefty half point at its next meeting, down from nearly 80% on Wednesday.

Treasury yields, which typically move in the opposite direction of stocks, also dropped following the release of the jobs report.

Still, Wall Street was in panic mode after tech lender SVB Financial Group announced on Thursday that it needed to sell billions of dollars of assets to make its customers whole. Fear of a bank run sent shares of SVB plunging 60% on Thursday, trading was halted on Friday morning pending news.

That plunge spilled over into the rest of the banking industry as investors worried about larger risks in the sector.

US bank stocks logged the largest declines in nearly three years on Thursday, and continued to fall on Friday. Shares of JPMorgan Chase were down about 0.7% on Friday while shares of Citigroup fell by 1.5%. Wells Fargo was down 2.1% and Bank of America dropped by 3.9%.

The Dow was down 87 points, or 0.3%, on Friday morning.

The S&P 500 fell by 0.4%.

The Nasdaq Composite was 0.5% lower.

Silicon Valley Bank headquarters in Santa Clara, California, on Thursday, March 9.

SVB Financial Group’s announcement that it needed to sell billions of dollars of assets to make its customers whole continued to send Wall Street into panic mode.

Shares of SVB (SIVB) were halted Friday morning after falling more than 60% in premarket trading. The stock tumbled 60% Thursday.

SVB, a relatively unknown bank outside of Silicon Valley, lends to higher-risk tech startups that are struggling as interest rates rise and venture capital money dries up. The bank partners with nearly half of all venture-backed tech and health care companies in the United States, many of which pulled deposits out of the bank as rising interest rates raised concern that the bank may not be able to get all its customers’ money back if they pulled their deposits en masse.

Essentially dealing with a bank run, SVB told investors it had to sell a portfolio of US Treasuries and $1.75 billion in shares at a loss to cover rapidly declining customer deposits.

That led Wall Street billionaire hedge fund manager Bill Ackman to compare SVB’s situation to Bear Stearns, the first bank to collapse at the start of the 2007-2008 global financial crisis. Ackman said in a series of tweets that SVB may require a bailout and called on the US government to to step in to protect customers’ deposits and prevent damage to the bank’s tech startup clients.

Fear of a bank run sent shares of SVB tumbling again in premarket trading Friday. The stock was halted at 8:35 a.m. ET on Friday pending a news announcement, according to the New York Stock Exchange and Nasdaq.

The halt comes as investors await information about the tech-focused lender’s efforts to raise capital after it sold part of its portfolio of US Treasuries at a loss to cover a rapid decline in customer deposits.

SVB Financial Group, which is partnered with nearly half of all venture-backed tech and health care companies in the United States, saw its stock decline more than 60% on Thursday. Shares were down another 61% in premarket trading Friday prior to the halt.

That plunge spilled over into the rest of the banking industry as investors worried about larger risks in the sector.

US bank stocks logged the largest declines in nearly three years on Thursday.

The KBW Bank Index, which tracks 24 leading US banks, fell 7.7%, its biggest drop in almost three years.

Markets in Europe and Asia also tumbled Friday.

Job seekers stand in line at the Mega South Florida Job Fair held in the FLA Live arena on February 23 in Sunrise, Florida.

The US economy added 311,000 jobs in February, according to the Labor Department’s closely watched monthly employment snapshot, released Friday.

That’s a pullback from the blockbuster January jobs report, when a revised 504,000 positions were added, but shows the labor market is still emitting plenty of heat.

The unemployment rate ticked up to 3.6% from 3.4%.

Economists were expecting a net gain of 205,000 jobs for February and no change in the unemployment rate, according to Refinitiv.

“The unemployment rate is up 0.2% to 3.6%, higher than forecast,” said Mark Hamrick, senior economic analyst at Bankrate. “Contributing to upward pressure here, there were more people looking for work.”

Industries with notable job gains included leisure and hospitality, retail trade, government and health care. After being crushed during the pandemic, the leisure and hospitality has been steadily adding back employees and trying to meet increased demand from consumers shifting their spending from goods to services.

Average hourly earnings — a closely watched metric as the Federal Reserve seeks to evaluate the impact of rising wages on inflation — grew 0.2% month-on-month and were up 4.6% over the year before.

The labor force participation rate increased to 62.5% from 62.4%.

The Fed has been battling for almost a year to slow the economy and crush the highest inflation in 40 years, but the labor market continues to defy those efforts.

Markets in Europe and Asia tumbled Friday following a sharp selloff in banking stocks in the United States as a major tech lender said it had to sell shares to plug a hole in its finances.

SVB Financial Group, which is partnered with nearly half of all venture-backed tech and health care companies in the United States, was forced to raise capital after it sold part of its portfolio of US Treasuries at a loss to cover a rapid decline in customer deposits.

Its stock cratered 60% on Thursday, and was down 46.6% in premarket trading on Friday.

“Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable — the SVB situation is a reminder that many institutions are sitting on large unrealized losses on their fixed-income holdings,” commented Russ Mould, investment director at UK broker AJ Bell.

Europe’s benchmark Stoxx Europe 600 index fell 1.5% in early trading, while London’s bank-heavy FTSE 100 (UKX) index slid 1.8%.

The Stoxx Europe 600 Banks index, which tracks 42 big European banks, including those in the United Kingdom, sank by more than 4% Friday morning. Shares in banking giant HSBC (HSBC) tumbled nearly 5% Friday. The shares of Barclays (BCS) were down 3.4%, Deutsche Bank (DB) 7.4% and Italy’s Unicredit (UNCFF)3.6%.

In Asia, Hong Kong’s Hang Seng (HSNGY)led losses in the region, sinking 3%, while China’s Shanghai and Korea’s Kospi fell 1.4% and 1% respectively.

Asian markets have also been pressured this week because China has failed to announce any major economic stimulus during its National People’s Congress.

Meanwhile, Japan’s Nikkei ended Friday down 1.7% as the country’s central bank decided to keep its ultra-low interest rates unchanged.

US stocks dipped in pre-market trading. Futures on the benchmark S&P 500 (DVS) index fell 0.43%, while futures on the tech-heavy Nasdaq Composite (COMP) dropped 0.2%.

The losses come after US bank stocks logged the largest falls in nearly three years on Thursday. The KBW Bank Index, which tracks 24 leading US banks, fell 7.7%, its biggest drop in almost three years.

The selloff is a sharp turnaround for the global banking sector, which, until Thursday, had enjoyed surging stock valuations since last fall.

People walk by the New York Stock Exchange in the Financial District on March 7 in New York City. 

Fear overtook Wall Street Thursday after SVB Financial Group, a bank that lends primarily to tech companies, told investors it had to sell $1.75 billion in shares at a loss in order to cover rapidly declining customer deposits. 

That triggered losses across the banking sector and concern that the Federal Reserve’s interest rate hikes are preventing banks from raising capital. 

Bank stocks fell by their largest levels in nearly three years on Thursday, bringing all three major indexes down with them. 

The Dow closed lower by 543 points, or 1.7%. The S&P 500 fell by 1.9% and the Nasdaq Composite was down 2.1%. 

Silicon Valley-based SVB notched the largest decline in the sector, down by more than 60%, as CEO Greg Becker said the bank could be dealing with problems for some time to come.

Shares of JPMorgan Chase dropped by 5.4%, Bank of America fell 6.2%, Wells Fargo was down 6.2% and Citigroup was 4.1% lower. 

When interest rates were near zero, large banks scooped up Treasuries and bonds. Now, as the Federal Reserve hikes rates to fight inflation, those bonds are worth much less and banks are sitting on the losses. For SVB, which said it is partnered with nearly half of all venture-backed tech and health care companies, cash-hungry startups are feeling the pinch.

Investors were also rattled ahead of Friday’s key employment report from the Labor Department, which they hope will provide some clarity on the Fed’s next policy moves.