S&P 500: -4.55% DOW: -4.44% NASDAQ: -4.71% 10-YR: 3.69%
Last Week on WallStreet - March 11th, 2023
What Happened?
A volatile five sessions on the street finished with the stock indices' largest weekly losses so far this year. While Jerome Powell's hawkish tone on Capitol Hill and a strong jobs report pushed equities down, the primary blow came following Friday's news that Silicon Valley Bank was forced to close by financial regulators. The bank's collapse sparked investor fears that the solvency issues may spread, exposing cracks in our financial system.
Beneath the surface, all sectors finished the week meaningfully lower as investor fears drove stocks down. Financials (-8.5%) were decimated by the SVB news while Materials (-7.6%) followed not so far behind. The most resilient sectors were Staples (-2.0%) and Utilities (-2.8%).
Silicon Valley Bank is Shut Down by Regulators in Biggest Bank Failure Since Global Financial Crisis
- Financial regulators have closed Silicon Valley Bank and taken control of its deposits, the Federal Deposit Insurance Corp. announced Friday
- The FDIC said in the announcement that insured depositors will have access to their deposits no later than Monday morning
- The FDIC’s standard insurance covers up to $250,000 per depositor, per bank, for each account ownership category
- Prior to the closure, the bank announced it was looking to raise more than $2 billion in additional capital after suffering a $1.8 billion loss on asset sales
The key takeaway - The failure of Silicon Valley Bank follows the demise of Silvergate Capital earlier this week as these institutions, tied heavily to technology and venture capital, experience collapse. A drastic fall in asset sale prices and an influx of customer withdrawals ultimately forced the bank into insolvency. The concern for markets is how a prominent regional bank such as SVB could fail so quickly and if the issues seen here could spread to other financial institutions.
Fed Chair Testifies Before Senate on Inflation, Speeding Up Rate Hikes
- Citing a recent surge in job growth and inflation, Federal Reserve Chair Jerome Powell told Congress Tuesday the central bank will likely raise its key interest rate higher than anticipated
- 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.”
- Powell faced sharp criticism from committee Democrats who said higher rates don't address the main causes of inflation and will mean millions of job losses, along with a likely recession
The key takeaway - In the first genuine speaking opportunity for the Fed Chair since the release of a swath of fresh economic data, Jerome Powell felt empowered to bring a hawkish tone with him to Capitol Hill. It was the first time he indicated the committee could resume a higher pace of interest rate hikes as he reiterated the Fed's data-dependant stance. He confirmed what investors had assumed since receiving the stronger-than-expected jobs, consumer spending, and inflation reports of the past several weeks, that the Fed is watching and will do what it takes to reel in prices.
Bank Mayhem is On Fed's Radar on Jobs Friday
- The Labor Department reported on Friday that the U.S. economy added 311,000 jobs last month, more than the 225,000 that economists expected
- The unemployment rate skipped to 3.6% from 3.4%, but as more people joined the labor force, and were looking for work
- The labor-force participation rate rose to 62.5% from 62.4%, marking its highest level since March 2020
- Average hourly earnings rose by just 0.2% from a month earlier compared with economists’ expectations of 0.4%
The key takeaway - The headline numbers of Friday's jobs report show incredible strength in the job market. Despite adding significantly more jobs than expected, the labor force participation rate ticking up allowed a bit more breathing room in the unemployment rate. Some of the underlying data, however, caused some concern. Job gains overall remain too high for sustainability and significant gains in the hospitality industry, which is lower paying and may skew average wage growth lower, generated pause for some market participants.
From the Waterloo Watercooler
Tesla is being investigated by US safety regulators over steering wheels coming off in moving vehicles and a fatal crash involving its Autopilot feature
For the first time since 2016, a new nuclear reactor in the US has reached the stage where it’s begun splitting atoms
The National Transportation Safety Board has opened a special investigation into the organization and safety at Norfolk Southern over its derailments
China set a modest economic growth target of around 5% this year during its legislature’s annual gathering. That’s its lowest growth projection in more than 25 years