Major stock indexes fell on Thursday as shares of banks across the nation collapsed following a stark warning from one of Silicon Valley’s biggest lenders, which said it hopes to raise billions of dollars to help shore up cash during the challenging economy—adding to industry concerns stoked by the collapse of crypto bank Silvergate and the threat of rising interest rates.
Though it surged in early trading, the Dow Jones industrial average fell 543 points, or 1.7%, to less than 32,255 on Thursday, as the S&P 500 and tech-heavy Nasdaq shed 1.8% and 2.1%, respectively.
Dragging down sentiment throughout the day, Silicon Valley-based startup lender SVB Financial said it sold $21 billion of its securities portfolio and hopes 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—still 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.
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.
“Banks are the most important sector of the market,” Crisafulli added, 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 financial health of institutions, with Silvergate’s collapse spurring concerns of more-stringent banking regulation.
The Labor Department’s looming jobs report on Friday also added to uncertainty on Thursday: “The stakes are so high,” says Commonwealth Financial Network’s Brad McMillan, who notes another strong report after January’s blowout would be good for the economy, but bad for the Fed, which could then be forced to raise rates more aggressively.
What To Watch For
On average, economists expect the labor market added about 225,000 jobs last month after a blockbuster 517,000 new jobs were created in January. Crisafulli says anything above 300,000 could force the Fed to accelerate the pace of interest rate hikes for the first time since May—“creating a whole fresh set of headwinds” for stocks.
Crypto Bank Silvergate Will Shut Down Amid Financial Peril (Forbes)