What SVB means for markets
Employees stand outside the closed headquarters of Silicon Valley Bank (SVB) on March 10, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new international markets newsletter. CNBC Daily Open gives investors access to everything they need to know, wherever they are. Like what you see? You can subscribe here.
Two bank collapses prompt action by financial regulators.
What you need to know today
- The Federal Reserve will create a Bank Term Funding Program that lends money to SVB. This ensures that people can access their investments beyond $250,000 and prevents a widespread economic collapse.
- Stock futures jumped on the news. S&P 500 futures rose 1.1%, Nasdaq 100 futures added 1.2% and futures linked to the Dow Jones Industrial Average increased 265 points.
- Then on Monday morning, the regulators closed Signature Bank – one of the main banks to the cryptocurrency industry – citing systemic risks. All deposits will be made whole, according to Federal regulators.
- As for the US jobs number released on Friday – remember that? – revealed that US nonfarm payrolls growth slowed to 311,000 in February, down from 504,000 in January but still more than expected at 225,000. In signs that the labor market may be cooling, the unemployment rate was higher than expected while wage growth was slower.
- PRO A big inflation report and any possible fallout from SVB’s problems is what investors are looking for next week. “It will be a major market mover and set the tone for the market,” said Michael Arone, chief investment strategist at State Street Global Advisors.
The bottom line
The February jobs report was supposed to be Friday’s news event. Then, a bank crash happened. Hard to beat that in terms of impact. There’s a lot to unpack today, so bear with me.
Let’s start with the main character of the day, the jobs report. At first blush, it is not promising for people worried about inflation. The number of jobs created exceeded the Dow Jones estimate. But go below the surface, and cracks will appear in the foundation. Average hourly earnings did not rise as much as expected, and the unemployment rate rose to 3.6%, above expectations of 3.4%. In short: Some good news, some bad news, if you’re an investor. “There’s something for everyone,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
By itself, the jobs data was mixed enough for the Federal Reserve to consider raising interest rates by half a percentage point. But wait – a bank collapsed! And not just any regional bank, but Silicon Valley Bank, the gateway to venture-backed tech startups. We can think of SVB as the first (high profile) victim of higher interest rates.
But the good thing – if there can be a good thing since a bank collapse – is that regulators decided to step in to protect deposits. The move suggests the Fed recognizes the potential for broader contagion in the economy and may reduce its rate hikes, just to avoid accidentally bringing down more banks. (Case in point: At the time of this newsletter’s publication on Monday morning, financial regulators announced they were closing a second bank, New York-based Signature Bank.)
That may explain why markets fell faster on Friday than they did earlier in the week when Fed Chairman Jerome Powell suggested that higher rates were on the table. On Friday, the Dow Jones industrial average lost 1.07%, the S&P 500 fell 1.45% and the Nasdaq Composite shed 1.76%.
In fact, markets may still be digesting the shock waves before selling off. But I suspect that hopes for lower rates due to the collapse of SVB may be keeping markets moving. It’s a line of thinking shared by CNBC’s Jim Cramer, who argued that nothing is more futile than a debt-laden bank collapse. Goldman Sachs even believes the Fed will hold off on hikes at its next meeting due to “stress in the banking system,” the bank said in a Sunday note. Of course, all eyes will be on the health of regional banks in the coming days.
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