Stocks spent the early part of Friday morning chopping between positive and negative territory as investors dissected the February jobs report. However, chaos erupted on Wall Street after regulators shut down Silicon Valley Bank, a regional financial firm that services many of the largest tech companies. What resulted were big losses for the major indexes and substantial slides for a number of bank stocks.
Wall Street had been waiting for the February jobs report with bated breath. It was just earlier this week that Federal Reserve Chair Jerome Powell warned the central bank is prepared to issue more rate hikes if economic data continues to come in strong. Data released earlier underscored a resilient labor market, with the U.S. adding a much higher-than-expected 311,000 new jobs last month. However, the report wasn’t all that bad, with the unemployment rate edging up to 3.6% from 3.4% in January, and the pace of wage growth slowing – good news on the inflation front.
“From an equity market standpoint, the jobs report was mixed but on balance probably better than feared. The headline jobs number was strong but importantly hourly earnings were contained,” says Matt Peron, director of research at Janus Henderson Investors, adding that this should provide some relief that “extremely high rates might not come to pass.” Still, the analyst remains cautious, “as the impact of rates is just starting to appear in the broader economy and inflation is still too high for the Fed’s comfort level.”
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The day’s mood quickly shifted on news that Silicon Valley Bank had collapsed, marking the largest bank failure since the 2008 financial crisis. Shares of SVB Financial Group (SIVB (opens in new tab)) – which owns Silicon Valley Bank – slumped more than 60% Thursday amid serious debt concerns, and were halted earlier today.
“The story began when insiders were advising clients to pull their money out, and as is often the case when financial institutions start to falter, people shot first and asked questions later,” says Louis Navellier, chairman and founder of Navellier & Associates. “Why should this matter? Because fears are high that problems there may spread to other regional banks.”
Indeed, bank stocks were some of the biggest losers on Wall Street today. Among those notching notable losses were Silvergate Capital (SI (opens in new tab), -10.6%), Signature Bank (SBNY (opens in new tab), -22.9%) and First Republic (FRC (opens in new tab), -14.8%).
As for the major indexes, the Dow Jones Industrial Average fell 1.1% to 31,909, the S&P 500 slumped 1.5% to 3,861, and the Nasdaq Composite shed 1.8% to 11,138.
Biden’s budget and investors
We focus on investing in this space, but sometimes it’s just as important to be mindful of other financial topics, like taxes. Take President Joe Biden’s budget for the upcoming fiscal year, which the White House says will reduce the deficit by roughly $3 trillion over 10 years. Among the proposals is a near-doubling of the capital gains tax rate. Additionally, the president’s budget includes a “wealth tax” on the country’s richest people.
“If Biden’s tax plan were enacted, there would be noticeable investor implications,” says Pratik Patel, managing director and head of family wealth strategies, BMO Family Office. However, Patel reminds investors that “Biden’s budget and tax plan is a wish list, especially with a divided Congress. It’s important for investors to take a wait and see approach before making any drastic investment decisions driven by fears of higher taxes in the future.”