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Wall St falls as bank contagion fears eclipse easing rate-hike jitters

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 6, 2023. REUTERS/Brendan McDermid

U.S. stock indexes fell on Friday as a worsening SVB Financial crisis fueled contagion risks that overshadowed easing rate hike jitters amid signs of cooling labor market.

California banking regulators have closed SVB Financial Group (SIVB.O), the largest bank failure since the financial crisis, moving quickly to protect depositors as a crisis at the startups-focused lender rippled through global financial sector.

The bank had been exploring options, including a sale after its efforts to raise capital failed, according to sources familiar with the matter. The lender had launched a share sale on Thursday to shore up its balance sheet that unleashed fears about the health of banks, starting a slide the sector’s shares.

“We kicked off an emotional response in selling banks of every shape and size and clearly as we try to compartmentalize those banks that mismanage their duration risk, we’re finding that there was an overreaction in general to the rest of the banks,” said Art Hogan, chief market strategist at B Riley Wealth.

The KBW regional banking index (.KRX) shed 3.5% while S&P 500 financials (.SPSY) dropped 1.1%.

Shares of major U.S. banks JPMorgan Chase & Co (JPM.N) and Wells Fargo (MS.N), however, rose 2% and 1.4% respectively. Trading in SVB shares remained halted.

Meanwhile, the closely watched non-farm payrolls report showed the U.S. economy added jobs in February, average hourly earnings rose 0.2% last month after gaining 0.3% in January, while the unemployment rate rose to 3.6%.

The data, showing some softening in the labor market, eased concerns driven by hawkish remarks from Fed Chair Powell earlier this week that the Federal Reserve could shift back to a large 50-basis-point rate hike at its March meeting after dialing down the size of its rate increases last month.

“When you read through the jobs report, you’re getting more good news than bad. I certainly think that would be enough to motivate the Fed to stick with their 25 basis point cadence,” said Hogan.

Traders are now pricing in a 32% chance of a 50-basis-point hike from the Fed this month, compared with a 50% chance before the numbers were released.
A separate report on Thursday showed a sharp rise in jobless claims, which had also buoyed hopes of the Fed softening its monetary policy stance.

All three major U.S. indexes were headed towards weekly losses.

At 12:11 pm ET, the Dow Jones Industrial Average (.DJI) was down 165.03 points, or 0.51%, at 32,089.83, the S&P 500 (.SPX) was down 28.33 points, or 0.72%, at 3,889.99, and the Nasdaq Composite (.IXIC) was down 103.07 points, or 0.91%, at 11,235.29.

Among other stocks, Gap Inc (GPS.N) fell 5.6% after the apparel maker posted a bigger-than-expected fourth-quarter loss and forecast full-year sales below Wall Street estimates.

Oracle Corp (ORCL.N) slid 3.7% after the software firm missed third-quarter revenue estimates, while Caterpillar Inc (CAT.N) slipped 4.0% after UBS downgraded the equipment maker to “sell” from “neutral”.

Declining issues outnumbered advancers by a 2.79-to-1 ratio on the NYSE and by a 3.11-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week high and 32 new lows, while the Nasdaq recorded 19 new highs and 393 new lows.

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