US stocks fall on financial worries as traders flock to Treasuries

Investors sold US stocks and piled into government bonds as they were rocked by concerns about the value of US banks’ bond portfolios as they prepared for a payroll report that will affect Federal Reserve policy.

The blue-chip S&P 500 stock index closed 1.8 percent Thursday and the tech-heavy Nasdaq Composite fell 2.1 percent. Both indices recorded their biggest declines since February 21.

The S&P 500 financial sub-index fell 3.9 percent on concerns about the value of banks’ holdings of government bonds and other debt instruments. The move followed crypto-focused Silvergate Bank’s announcement on Wednesday that it would wind down amid depositor pullbacks and signs that Silicon Valley Bank was planning a share sale to bolster its capital base.

Shares in JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — the four largest U.S. lenders by assets — each fell 4.1 percent to 6.2 percent.

The downturn in financial stocks came as traders piled into US Treasuries, with yields on short-dated Treasuries falling sharply. Yields on interest-sensitive two-year government bonds fell 19 basis points to 4.89 percent, while those on 10-year bonds fell 5 basis points to 3.92 percent. Yields move inversely to bond prices.

The moves came ahead of a U.S. payroll report on Friday, with data providing insight into the economy’s direction at a time of strong inflation.

“Holding on to bets that interest rates will continue to rise is much less attractive now and not worth the risk of being surprised by weak labor market data tomorrow,” said Edward Al-Hussainy, senior analyst at Columbia Threadneedle. “The path to least resistance today was to take profits on these bets and reduce exposure to markets.”

Last month’s jobs report was unexpectedly strong, leading investors to anticipate higher interest rates amid aggressive rhetoric from the Fed.

“Good macro news equates to bad market news,” said Florian Ielpo, chief macro and multi-asset portfolio manager at Lombard Odier Investment Managers.

He added that another strong reading of payrolls would “confirm that more is needed to curb labor market dynamics”.

In his semiannual congressional statement this week, Fed Chairman Jay Powell said the U.S. central bank was ready to return to more aggressive rate hikes, but stressed that “no decision” had been made.

Data released on Thursday showed initial US jobless claims rose to 211,000 last week, beating expectations of 192,000 and the biggest increase since October. It was the first time in eight weeks that more than 200,000 jobless claims were filed.

“Even after today’s reported increase, the level of jobless claims remains very low. . . most companies are still hiring or retaining workers,” said Joshua Shapiro, chief US economist at consulting firm Maria Fiorini Ramirez.

The dollar index, which measures the US currency against a basket of six counterparts, fell 0.4 percent. The index is up 1.8 percent this month as U.S. Treasury yields have risen and traders have raised their forecasts for the spike in the federal funds rate.

European equities struggled to make headway as investors digested the data. The regional Stoxx 600 closed 0.2 percent, the German Dax remained flat and the French CAC 40 lost 0.1 percent.

The London FTSE 100 closed 0.6 percent lower as mining stocks fell on fears a stronger dollar would weigh on profits.

In Asia, China’s CSI 300 fell 0.4 percent on weaker-than-expected Chinese inflation data. Consumer prices rose 1 percent and producer prices fell 1.4 percent — the lowest since November 2020. Hong Kong’s Hang Seng fell 0.6 percent amid fears the stock market rebounds in China-related stocks after the country his zero Covid ban had lifted policy was waning.

Oil prices fell for a third straight day, with the international oil benchmark crude oil Brent and its U.S. equivalent West Texas Intermediate falling 1.2 percent and 1.3 percent, respectively.

Additional reporting by Kate Duguid in New York

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