Markets decline as banking concerns overshadow a jobs report

Stocks are falling on Friday as concerns about the banking system overshadow an eagerly awaited report that revealed that employee pay increases are slowing down and other signs that Wall Street expects to see pressure on inflation abating.

A day after seeing one of its most significant declines of the year, the S&P 500 was 0.8% lower in early trade, by 9:44 a.m., the Dow Jones Industrial Average was 32,091, down 162 points, or 0.5%. While the Nasdaq composite fell 1.1%, it was Eastern time.

The financial sector, which fell strongly for a second day, caused the biggest fall in the market.

The shares of SVB Bank, a Silicon Valley bank that serves the startup industry, have fallen more than 60% this week as it raises money to improve its financial standing.

This has sparked some worries that a larger banking crisis may break out. The shares of SVB were suspended Friday morning.

Friday’s losses amplify what strategists in a BofA Global Research study dubbed “the crashy vibes of March.”

Markets have been twitchy recently on worries that high inflation is proving too challenging to drive down, which could push the Federal Reserve to reaccelerate its hikes to interest rates.

Such increases can lower inflation by slowing the economy, but they also depress stock values and other investment prices and increase the likelihood of a future recession. Wall Street gave up on the possibility of interest rate decreases later this year in February.

Following the Fed’s statement that it may soon upshift the magnitude of its rate hikes, concerns about rates rising considerably higher than anticipated increase this week.

Yet the jobs report released on Friday reduced those concerns. Overall hiring exceeded expectations, which may indicate that the job market is still too strong for the Fed’s tastes despite the Fed raising rates at its quickest pace in decades.

But, the figures also revealed a decline from the startling hiring rate in January. More significant for markets is that worker hourly wages increased by 0.2% in February over January.

That represented a deceleration from January’s 0.3% increase and fell short of the economists’ predicted 0.4% acceleration.

This figure is significant for Wall Street since the Federal Reserve has stated that its focus in combating inflation is specifically on wage increases.

While raises benefit employees trying to keep up with inflation, the Fed is concerned that excessive gains could create a domino effect that would aggravate inflation.

The unemployment rate increased by 0.1 percentage points to 3.6% from 3.4%, and the proportion of Americans with jobs or seeking work are two different indicators of a cooling but still robust labor market.

According to Brian Jacobsen, senior financial analyst at Allspring Global Investments, “we’re no longer seeing the tremendously widespread employment growth” as an indication of diminishing inflationary pressure.

Gains are becoming increasingly concentrated, which is a warning sign that the labor market’s impetus is waning.

These patterns indicate that traders are reversing their bets on the magnitude of the subsequent rate increase by the Fed.

Traders are now banking on a 65% likelihood that the central bank would remain with a more modest 0.25 point hike after earlier in the week, believing it would reaccelerate and return to a 0.50 point hike later this month.

After prior increases of 0.50 and 0.75 points, it dropped down to that pace last month.