Stocks got crushed on Thursday as worries rippled through the banking sector and investors remained on edge ahead of a crucial February jobs report slated for Friday morning.
At the closing bell, the S&P 500 (^GSPC) was down 1.8%, the Dow Jones Industrial Average (^DJI) was off by 1.6%, or 542 points, and the Nasdaq Composite (^IXIC) was down by 2%.
Through Thursday's close the market was on pace for its worst week of the year, Bloomberg data showed.
The selling on Thursday accelerated throughout the trading session as a collapse in shares of SVB Financial (SIVB) pressured bank stocks and raised concerns over previously unforeseen knock-on effects from the Federal Reserve's rate hiking campaign on the financial system.
On Wednesday, SVB announced a $2.25 billion capital raise and the sale of nearly all of its securities portfolio for a loss of $1.8 billion. The company's Silicon Valley Bank subsidiary is the bank for many startups and other players in the venture world.
In a letter to investors on Wednesday, the company said: "We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses."
The Information reported Thursday afternoon Greg Becker, CEO of Silicon Valley Bank, said on a call with investors, "I would ask everyone to stay calm and to support us just like we supported you during the challenging times."
Becker also reportedly told investors the bank has "ample liquidity," but said that "if everyone is telling each other SVB is in trouble, that would be a challenge."
SVB shares fell 60% on Thursday.
This decline also weighed on regional banks, with the SPDR Regional Banking ETF (KRE) falling 8% while the SPDR Financial Sector ETF (XLF) fell some 4%.
Among major U.S. money-center banks, shares of JPMorgan (JPM), Bank of America (BAC), and Wells Fargo (WFC) were all down more than 5% on Thursday.
First Republic Bank (FRC), which maintains a large high net-worth clients business, saw shares fall 16% during Thursday's trading session.
As Bloomberg's Jonathan Ferro tweeted, Thursday seems to have marked the moment in the rate-hiking cycle that higher rates are good for banks until they are no longer good.
Earlier Thursday, labor market data had been the main catalyst for the market as investors await a crucial jobs report set for release Friday morning.
The weekly report on initial filings for unemployment insurance Thursday morning showed 211,000 claims were filed last week, an increase of 21,000 from the prior weak and what economists at Oxford Economics called the "first hint of weakness" in this data.
"The jump in jobless claims to 211k last week from 190k is the first sign of weakness in the claims data this year but is still well short of the 300k+ level that would be consistent with a recession," Michael Pearce, lead U.S. economist at Oxford Economics, wrote in a note to clients. "As the Fed presses ahead with more rate hikes, we expect layoffs to eventually rise significantly."
The initial pop from stocks following this data came after two days of testimony from Federal Reserve Chair Jerome Powell made clear interest rates are likely to go higher than expected amid strong labor market and inflation data.
Stocks finished Wednesday's trading session mixed after a sell-off Tuesday that was triggered by comments from Powell suggesting the Fed will need to raise rates higher than previously forecasted amid stubborn inflation.
"I was surprised by Powell's willingness to accelerate the policy tightening pace, but I am not surprised by the admission that terminal rates will need to rise further," said Neil Dutta, head of economics at Renaissance Macro.
"At present, the futures market is priced for a [50 basis point] move in March. There is no point cracking open a door if you don’t intend to walk through." Data from the CME Group shows markets placing an 80% on the Fed raising rates by 0.50% later this month.
Elsewhere in markets, WTI crude oil fell about 1.5% to trade near $75.50 a barrel, a retreat from the $80 a barrel oil was trading near earlier this week.
Investors were also keeping a close eye on the Treasury market with the 10-year yield firmer by about 5 basis points, trading at 3.92% after a move higher in yields earlier this week led to a deepening inversion of the yield curve.
In single-stock news, shares of Silvergate (SI) were in focus on Thursday after the bank said late Wednesday it would liquidate and wind down its operations after suffering heavy losses amid huge deposit outflows from its digital asset client base. Shares of Silvergate, which have lost more than 95% over the last year, fell 41% on Thursday.
Other stocks on the move on Thursday included MongoDB (MDB), which fell 8.3% following a disappointing quarterly report. On the flip side, shares of Asana (ASAN) gained 19% Thursday after a surprisingly strong quarter.
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