NEW YORK: Wall Street’s indexes ended down more than 1% on Friday after investors ran for the exits as they feared for the health of US banks after the failure of a high-profile lender to the technology sector, overshadowing the February jobs report.
California banking regulators said they closed SVB Financial Group to protect deposits in what was the largest bank failure since the financial crisis. A capital crisis at SVB had already put pressure on bank stocks globally.
SVB had tried but failed to shore up its balance sheet through a stock sale proposed late on Wednesday. The same day, crypto-lender Silvergate Capital said it would have to wind down after huge losses from the FTX cryptocurrency exchange collapse.
“There’s concern cracks may be appearing in the financial system as a result of the Federal Reserve’s aggressive rate hikes,” said Carol Schleif, chief investment officer, BMO family office in Minneapolis. “The fear is whether it’s broader than one industry’s bank and one segment of the economy.” While many investors looked through their bank holdings for signs of risk, Schleif said much of the weakness in regional bank stocks stemmed from a “proverbial shoot first ask questions later situation.” The KBW regional banking index ended the session down 2.4% while the S&P 500 financials index lost 1.8%.
Schleif and other investors said they hoped regulations added to the US banking system since the 2008 financial crisis would prevent a similar catastrophe.
But still “people are very nervous because they don’t want a repeat,” she said.
The Dow Jones Industrial Average fell 345.22 points, or 1.07%, to 31,909.64, the S&P 500 lost 56.73 points, or 1.45%, to 3,861.59 and the Nasdaq Composite dropped 199.47 points, or 1.76%, to 11,138.89.
All 11 S&P 500 industry sectors lost ground. Real estate , down 3.3%, led declines while consumer staples the top performer, fell just 0.5%.
For the week, the S&P lost 4.6% in its biggest weekly percentage decline since September but was clinging to a tiny year-to-date gain of 0.6%. The Dow fell 4.4% for the week and was down more than 3% year-to-date while the Nasdaq declined 4.7% this week but was up more than 6% for 2023.
The Cboe Volatility Index, an options-based indicator that reflects demand for protection against stock market declines, closed at a 3-month high, up 2.19 points at 24.9 after touching a roughly five-month high during the session.
Investors had expected to end the week with most of their focus on economic data rather than banks.
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