By Stephen Culp
NEW YORK (Reuters) – Wall Street reversed an earlier advance on Thursday, weighed down by bank stocks and jitters ahead of Friday’s employment report, while Treasury yields eased and the dollar softened on signs that the Federal Reserve’s restrictive monetary policy is beginning to work as intended.
All three major U.S. stock indexes were last off around 1% or more after SVB Financial Group announced a $1.75 billion share sale to shore up its balance sheet. This sparked a broad sell-off as investors prepared for the Labor Department’s hotly anticipated February jobs data, expected before the bell on Friday.
“Investors are positioning cautiously ahead of tomorrow’s payrolls report,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management in Minneapolis. “A strong jobs report could be perceived by investors that the economy is still strong and the Fed needs to be more aggressive.”
“It’s a challenging situation,” Hainlin added.
The dollar backed off a near three-month high, gold advanced and benchmark U.S. Treasury yields eased as economic data took some of the sting out of Fed Chairman Jerome Powell’s hawkish, two-day congressional testimony.
Data released on Thursday showed U.S. jobless claims rose 11% last week – the largest increase in five months – while planned layoffs for February jumped four-fold, year-on-year.
Any signs of cracks in the tight labor market is good news as far as the Fed is concerned.
Graphic: Jobless claims and planned layoffs https://www.reuters.com/graphics/USA-STOCKS/zdpxdxbqnpx/joblesschal.png
A clearer picture on whether the job market is softening is expected on Friday in the Labor Department’s February employment report. Analysts expect the U.S. economy to have added 205,000 jobs last month – a sharp deceleration from January – and see the unemployment rate holding firm at 3.4%.
At last glance, financial markets have priced in a 69% likelihood of a larger, 50 basis point increase to the Fed funds target rate this month, according to CME’s FedWatch tool.
The Dow Jones Industrial Average fell 310.93 points, or 0.95%, to 32,487.47, the S&P 500 lost 44.63 points, or 1.12%, at 3,947.38 and the Nasdaq Composite dropped 152.89 points, or 1.32%, to 11,423.11.
European stocks ended modestly lower, dragged down by higher-for-longer interest rate worries.
The pan-European STOXX 600 index lost 0.22% and MSCI’s gauge of stocks across the globe shed 0.75%.
Emerging market stocks lost 0.90%. MSCI’s broadest index of Asia-Pacific shares outside Japan, closed 0.85% lower, while Japan’s Nikkei rose 0.63%.
Treasury yields eased in the wake of the jobless claims data.
Benchmark 10-year notes last rose 14/32 in price to yield 3.9208%, from 3.976% late on Wednesday.
The 30-year bond last rose 7/32 to yield 3.8648%, from 3.877% late on Wednesday.
The greenback, which rose to a near three-month high during Powell’s testimony, pulled back against a basket of currencies amid signs of softening in the labor market.
The dollar index fell 0.48%, with the euro up 0.35% to $1.0581.
The Japanese yen strengthened 0.92% versus the greenback at 136.11 per dollar, while sterling was last trading at $1.1917, up 0.63% on the day.
Oil prices erased earlier gains to head lower over looming worries of softening demand in the face of a possible recession.
U.S. crude fell 1.23% to settle at $75.72 per barrel, and Brent settled at $81.59 per barrel, down 1.29% on the day.
Gold jumped on hopes that the Fed would dial down its aggressive inflation battle.
Spot gold added 1.0% to $1,832.49 an ounce.
(Reporting by Stephen Culp; Additional reporting by Marc Jones in London; Editing by Alexander Smith and Richard Chang)