Wall Street stocks tumble: Why Bank of America and Citigroup have been hardest hit after Fed chair Powell’s testimony
Stocks stumbled on Wall Street on Thursday and added to the week’s losses as markets remain anxious about the prospect of more aggressive action by the Federal Reserve to fight inflation.
Major indexes started the day higher and gradually lost ground until they fell sharply in late trading.
The S&P 500 fell 73.69 points, or 1.8 per cent to 3,918.32. It marked the second-worst loss of the year for the benchmark index and further eroded gains made throughout January to kick off the year.
The sharp slide, which sank 95 per cent of stocks in the S&P 500, was particularly hard on banks. The S&P 500’s financial sector slumped 4.1 per cent .
SVB Financial Group lost 60 per cent of its value after announcing plans to raise up to 1.75 billion dollars in order to strengthen its position amid concerns about higher interest rates and the economy. Bank of America, Citigroup and other big banks fell sharply.
The Dow Jones Industrial Average fell 543.54 points, or 1.7 per cent to 32,254.86 and the Nasdaq fell 237.65 points, or 2.1 per cent , to 11,338.35.
The slump follows two days of testimony before Congress by Fed chair Jerome Powell, who said the central bank was prepared to continue making big interest rate increases if necessary.
Fears about a persistently aggressive Fed have been weighing on major indexes, all of which are on track for weekly losses.
The Fed’s inflation-fighting policies risk slowing the economy too much and pushing it into a recession, while also going too far in softening a strong labour market and putting many people out of work.
A government report on Thursday showed that the number of Americans applying for unemployment benefits last week jumped by the most in five months, but lay-offs remain historically low.
Yields on the two-year Treasury, which tends to track expectations for future Fed action, eased to 4.87 per cent from about 5.05 per cent just before the unemployment report’s release. It had been hovering at its highest level since 2007.
Unemployment and inflation
The unemployment data follows a report on Wednesday showing that the number of job openings advertised across the country last month was higher than economists expected. The US government’s more comprehensive report on hiring is scheduled for Friday.
A big concern within the labour market reports for the Fed and Wall Street is the pace of wage growth. Strong wage gains are good for workers struggling to keep up with high inflation, but it could also keep pushing inflation higher, making it harder for the central bank to fight high prices.
Wall Street has been reviewing a range of data that has highlighted both a resilient economy and stubborn inflation. More updates are coming next week when the government releases reports on inflation at both the consumer and wholesale levels, along with retail sales data.
Traders are leaning toward the Fed raising its benchmark interest rate by 0.50 percentage points on March 22. They had been expecting the central bank to stick with a smaller increase of 0.25 points prior to Mr Powell’s testimony this week, according to data from CME Group.
Looking ahead to the rest of 2023
The Fed’s goal is to bring inflation down to 2 per cent .
That figure stood at 5.4 per cent as of January. The central bank has already raised its key overnight rate to a range of 4.50 per cent to 4.75 per cent , up from virtually zero at the start of last year, its fastest set of hikes in decades.
Companies, meanwhile, have been cautious about their prospects through 2023 with uncertainty about the direction of the economy and inflation.
General Motors fell 4.9 per cent after joining a long list of companies with plans to trim its workforce amid worries about a recession. Many companies are coming off of a weak fourth quarter, with earnings for the broader S&P 500 slipping about 4.6 per cent . Economists expect profits to fall through the first half of 2023.
Investors were also focusing on a mix of corporate news that sent several stocks sharply higher and lower. Toymaker Build-A-Bear Workshop jumped 21 per cent after reporting strong fourth-quarter financial results.
JPMorgan Chase fell 5.4 per cent after the bank sued its former executive Jes Staley, alleging that he aided in hiding Jeffrey Epstein’s years-long sex abuse and trafficking in order to keep the financier as a client.
Associated Press – Press Association