Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
US equities declined sharply last week, with the S&P 500 recording its worst weekly performance since September. All sectors were down with banks taking the biggest hit amid the SVB Financial failure. Interest rates fell, with the yield on the US 10-year Treasury falling 26 basis points to finish the week at 3.70 percent. The dollar index was little changed, gold finished up, Bitcoin futures were down over 10 percent, and WTI crude was down 3.8 percent for the week.
US stocks saw significant declines on Friday as investors deciphered mixed signals from the February jobs report amid mounting concerns about contagion in the banking sector stemming from the troubles at Silicon Valley Bank (SVB). The nonfarm payrolls report showed that 311K jobs were added to the economy in February, while economists expected a figure closer to 215K. However, average hourly earnings growth came in cooler than expected, and the unemployment rate ticked up to 3.6 percent, lessening fears of an overheating labor market. This led many investors to reiterate calls for a 25 basis point hike at the next Fed meeting later this month. This view is certainly subject to change pending Tuesday's CPI report.
SVB Financial saw its shares halted for trading after falling 60 percent in value on Thursday. The bank was then taken over by US regulators on Friday, the second-largest bank failure since the 2008 collapse of Washington Mutual. The failure came after the value of its portfolio of mortgage bonds and US Treasuries fell by $1.8 billion amid the Fed rate-hike cycle. The bank hoped to raise $2.25 billion of capital to cover those losses, but on Friday instead moved to explore a potential sale. The S&P Financials Sector fell by 8 percent for the week, the worst weekly performance for the sector since June 2020, as investors began to worry if other banks might be exposed to similar risks.
Next week brings another set of widely anticipated reports that are seen as key catalysts headed into the March FOMC meeting. February CPI is out on Tuesday. Fears of inflation spiked after the Manheim Used Vehicle Value Index jumped 4.3 percent in February, the biggest month-over-month increase since 2009. Bank of America economists said they still expect the report to show core prices rose half a percent in February, implying inflationary pressures are still only diminishing slowly. This will only bolster the Fed’s "higher for longer" Fed Funds Rate policy posture. February’s Producer’s Price Index and Retail Sales are out on Wednesday, followed by Friday's Michigan Consumer Sentiment report.
As always, we will be watching and reporting back to you next week. Thank you.
