By Sinéad Carew and Amruta Khandekar
(Reuters) – Wall Street fell on Thursday, with bank stocks dragging all three major stock indexes down as investors worried that a jobs report on Friday could spur aggressive interest rate hikes by the Federal Reserve.
Stocks had risen early in the session after data showed jobless claims increased by the most in five months last week, providing some hopes for a looser labor market, which could dampen inflation.
But investors remained focused mostly on Friday’s closely watched non-farm payrolls report for February with expectations for a large wage increase on their minds. Hawkish comments this week from Fed Chair Jerome Powell had exacerbated concerns about upcoming interest rate hikes.
Traders were betting that chances of a 50 basis point rate hike at the Fed’s March meeting were around 80%, according to CME Group’s FedWatch tool, up sharply from a probability of 31% before Powell’s Tuesday and Wednesday appearances in Congress.
“There’s a lot of anticipation around tomorrow’s jobs report. We’re going to get a slew of data in the next week and a half,” said Mona Mahajan, Senior Investment Strategist, Edward Jones, New York, also citing inflation and retail sales reports all due out before the next Fed meeting which ends March 22.
Initial claims for state unemployment benefits rose 21,000 to a seasonally adjusted 211,000 for the week ended March 4, the Labor Department said on Thursday. Economists polled by Reuters had forecast 195,000 claims for the latest week.
While last week’s increased jobless claims may be “the first sign the labor market may be showing signs of loosening,” Mahajan wants to see “more data points to establish a trend.”
The February non-farm payrolls report is expected to show payrolls rose by 205,000 last month after January’s blowout 517,000 figure, which had first led markets to reprice their expectations for U.S. interest rates.
But with expected February wage increases at 4.7% compared with 4.4% in January, “it feels like its ticking in the wrong direction even if we just meet expectations, ” Mahajan said.
The Dow Jones Industrial Average fell 304.59 points, or 0.93%, to 32,493.81, the S&P 500 lost 45.32 points, or 1.14%, to 3,946.69 and the Nasdaq Composite dropped 158.94 points, or 1.37%, to 11,417.07.
The biggest drag on the S&P 500 came from the financial sector, down 3.4% as it was weighed down by bank stocks with S&P banks falling more than 6%, putting it on track for its biggest one-day percentage drop since June 2020.
Only on S&P sector was showing gains with utilities up 0.3%.
SVB Financial Group fell more than 50% hitting its lowest level since Sept. 2016 and was on track for a record one-day percentage loss after the lender slashed its 2023 outlook and launched a share sale to shore up its balance sheet.
Also weighing on the sub-index, Signature Bank was down 10% after its crypto-bank peer Silvergate Capital Corp disclosed plans to voluntarily liquidate.
General Electric Co rose 6% as the industrial conglomerate reiterated its 2023 earnings forecast.
Declining issues outnumbered advancing ones on the NYSE by a 2.81-to-1 ratio; on Nasdaq, a 2.84-to-1 ratio favored decliners.
The S&P 500 posted 5 new 52-week highs and 16 new lows; the Nasdaq Composite recorded 50 new highs and 222 new lows.
(Reporting by Sinéad Carew in New York, Amruta Khandekar, Shristi Achar A and Johann M Cherian in Bengaluru, additional reporting by Medha Singh; Editing by Vinay Dwivedi and Sriraj Kalluvila and David Gregorio)