Stocks plunged during a rough week as two banks went under, Federal Reserve Chair Jerome Powell offered a hawkish outlook to the Senate Banking Committee, and the February jobs report came in mixed.
Banks Bust
The first failure this week came courtesy of Silvergate Capital (SI). The crypto-centric bank announced that it would be winding down its business following months of struggles following the collapse of Sam Bankman-Fried’s empire.
Silvergate Capital got stuck in an entanglement that not even the Smiths could rival as $1 billion worth of SBF-related deposits sent shares plunging following the collapse of FTX and Alameda.
The California-based bank was forced to sell assets at a steep loss in order to cover billions in withdrawals.
The other California-based bank to go belly up was Silicon Valley Bank (SIVB).
SVB faced a bank run after Peter Thiel’s Founder’s Fund advised companies to withdraw from the bank. This came after SVB said that it would (or, wanted to) raise $2.25 billion via share sales Thursday.
The potential contagion from here is unclear. However, it is likely to hurt bank margins as banks tend to raise rates for depositors as they fight to keep people from moving their money to higher-yielding assets.
Hawk
Fed Chair Jerome Powell let the hawks fly during his prepared remarks to the Senate Banking Committee.
During his opening statement, Powell said that recent economic reports suggest that rates will need to continue higher, and remain longer than originally anticipated.
As if to rub salt in the gaping wounds of investors, Powell said, “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
This suggested that things need to get back on track quickly if we are to see a a pause in rate hikes that seemed inevitable not many months ago when inflation readings favored the doves.
Jobs Report
So did the February job report do investors any favors ahead of next week’s CPI and PPI reports?
Eh, not so much. The report was mixed.
Both Nonfarm payrolls and nonfarm private payrolls came in higher than expected as the labor market continues to run hot.
Where it gets interesting is the unemployment rate, which came in higher than expected, and wage growth came in lower than expected on a monthly basis but still rose on a yearly basis.
While those were somewhat encouraging, ultimately, it doesn't assuage fears that the Fed will tick back higher to 50 basis points following the conclusion of the March Fed meeting.
All in all, stocks fell hard this week. The S&P 500 dropped 4.55%, while the Dow fell 4.44%. Meanwhile, the Nasdaq declined 4.71% and the Russell 2000 fell 8.37%.