[New York Stock Market] Financial Stocks Plunge Amid Tightening Concerns... Nasdaq Falls Over 2%

Major indices on the U.S. New York Stock Exchange closed lower on the 9th (local time) amid ongoing tightening concerns ahead of the February employment report to be released the next day. Financial-related stocks, which were hit hard by the liquidation of Silvergate Bank and SVB Financial's stock sale, plunged the most since June 2020, dragging down overall investor sentiment.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 32,254.86, down 543.54 points (1.66%) from the previous session. The S&P 500, which focuses on large-cap stocks, fell 73.69 points (1.85%) to 3,918.32, while the tech-heavy Nasdaq dropped 237.65 points (2.05%) to close at 11,338.35.

All 11 sectors of the S&P 500 showed declines. Financial stocks fell by 4.1%, marking the largest drop since June 2020. Materials, real estate, telecommunications, and consumer discretionary stocks also fell more than 2%. By individual stocks, SVB Financial Group announced a $1.75 billion stock sale and plummeted nearly 60%. Following the liquidation news of Silvergate Bank, Silvergate Capital's stock also dropped more than 42%. Consequently, major financial stocks Bank of America (BoA) and Wells Fargo fell 6.2% and 6.18%, respectively. JP Morgan (-5.41%), Morgan Stanley (-3.86%), and Citi (-4.10%) also declined in unison.

[Image source=Reuters Yonhap News]

Investors digested Federal Reserve (Fed) Chair Jerome Powell's hawkish remarks over the two days earlier this week and awaited the employment report. Currently, Wall Street expects nonfarm payrolls to increase by 225,000 in February, with the unemployment rate at 3.4%. If a stronger-than-expected report, similar to last month, is confirmed, it is likely to intensify tightening concerns surrounding the Fed and immediately increase market volatility. Alex Saunders of Citi said, "Strong employment is bad news for the market," adding, "It will increase stock selling pressure and support large-scale Fed rate hikes." The day before, Fed Chair Jerome Powell expressed concerns about inflation, pointing to an overheated labor market as the underlying cause.

However, the weekly initial jobless claims released that morning recorded the highest level in 10 weeks, raising some hopes of labor market cooling among market participants. According to the U.S. Department of Labor, initial jobless claims for the week of February 26 to March 4 rose by 21,000 to 211,000, exceeding market expectations of 195,000 and marking the highest level in 10 weeks since December 24 last year. The increase in claims is interpreted as a result of layoffs continuing since the end of last year, mainly in the tech sector. The scale of layoffs in January and February this year is the largest since 2019, right after the financial crisis.

Nonetheless, local media evaluated that the absolute number of jobless claims remains low compared to the past. The ADP private employment report released the day before also suggests that the U.S. labor market remains robust, drawing more market attention to the February employment report to be announced the next day.

Tightening concerns persist. According to the CME FedWatch tool, the federal funds (FF) futures market currently prices in over a 60% chance of a big step (a 0.5 percentage point rate hike) in March. This figure was in the 31% range just a week ago. However, it is lower than the 78% recorded the previous day, when Powell's hawkish remarks about "the terminal rate possibly being higher" and "being ready to speed up rate hikes" caused a sharp surge. CNBC reported, "Powell emphasized that no decision has been made yet regarding the size of the hike at the March meeting, but the market is preparing for a bigger hike than expected based on recent strong economic data."

Adam Sarhan, CEO of 50 Park Investments, analyzed, "The Fed has changed the narrative that led the stock rally at the end of last year and in January this year," adding, "At that time, the market rebounded under the assumption that the Fed's rate hikes would soon stop, but Powell made it very clear that this is not the case." He conveyed the mood, saying, "The market is looking for a catalyst for a bull market but cannot find one."

The market, which started higher awaiting the employment report, plunged in the afternoon session. The liquidation impact of SVB Financial and Silvergate Bank dealt a direct blow to financial stocks, fueling concerns about the financial system. Following the bankruptcy filing of the virtual asset exchange FTX and the announcement of Silvergate Bank's liquidation, major cryptocurrencies such as Bitcoin and Ethereum also fluctuated. Bitcoin and Ethereum are currently trading more than 7% lower compared to the previous session.

U.S. Treasury yields showed slight easing as investors awaited the Fed's next move. The 2-year Treasury yield, sensitive to monetary policy, fell to around 4.87%. The 10-year yield eased to about 3.90%. The Dollar Index, which measures the dollar's value against six major currencies, was down more than 0.3% from the previous session at 105.2. The Dollar Index had fallen to the 100 level in early February but recently rose amid tightening concerns.

Oil prices fell for the third consecutive trading day amid ongoing Fed tightening concerns. On the New York Mercantile Exchange, April West Texas Intermediate (WTI) crude oil closed at $75.72 per barrel, down 94 cents (1.23%) from the previous session.