S&P 500 Clocks Worst Week Since September After Jobs Data, Bank Collapse

The S&P 500 closed down 56.73 points, or 1.4%, at 3861.59, while the blue-chip Dow Jones Industrial Average fell 345.22 points, or 1.1%, to 31909.64. The Nasdaq Composite lost 199.47 points, or 1.8%, to close at 11138.89. Investor sentiment has broadly soured in recent days, with the S&P 500 finishing down nearly 5% on the week.

Silicon Valley Bank collapsed after a run on deposits doomed the tech-focused lender’s plans to raise fresh capital.

Meanwhile, the government said Friday that U.S. hiring grew solidly but cooled some in February as employers added 311,000 jobs, more than economists surveyed by The Wall Street Journal had expected. Still, wage growth was below expectations, and the unemployment rate ticked higher to 3.6%.

Stocks initially wavered after Friday’s jobs report offered mixed signals for the Federal Reserve’s efforts to tame inflation, then sold off broadly after the news of the bank collapse. All S&P 500 sectors closed lower, and the broad-based index had its worst week since September.

Taken together, unemployment ticking higher and signs of stress in banking could cause the Fed to alter its rate-hike pace. Investors have been looking for a slowdown in the labor market that would allow the Fed to ease its pace of rate increases, since wage growth is a major contributor to inflation.

“The Fed now has very clear evidence that they are having an impact on the financial system and the economy—rate increases are starting to bite,” said

Mark Haefele,

chief investment officer at UBS Global Wealth Management. “While that’s not enough to give them pause, it is something they will take into consideration.”

Treasury yields tumbled, an indication that investors are adjusting their rate-increase expectations lower. The yield on the 2-year note dropped 0.314 percentage point to 4.586%, its largest single-day decline since September 2008. Bond yields fall as prices rise. Interest rate derivatives show that traders are now betting the Fed will cut interest rates before the end of the year.

“You had another hot jobs report which would argue for a 50 basis point hike,” said

Ellen Hazen,

chief market strategist at F.L.Putnam Investment Management. “But also, the Fed watches financial conditions and I think that with the way the market responded to SVB today, financial conditions have tightened. In that sense, this could be dovish for the Fed.”

Major U.S. banks had already lost billions in market value on Thursday after SVB’s troubles first prompted broader concerns about the health of the financial sector.

Trading of SVB shares was halted Friday morning after a 68% premarket selloff as the bank rushed to raise fresh capital. SVB said it had lost nearly $2 billion after being forced to sell assets to cover deposit withdrawals. The attempted capital raise failed, and by midday, the Federal Deposit Insurance Corp. said it had taken control.

Markets sold off across the globe, with investors rattled by the bank concerns. Several banks were among the worst performers in the stock market, including

PacWest Bancorp,

which plunged 38%, and

Western Alliance Bancorp,

which fell 21%. Signature Bank, First Republic Bank and

Charles Schwab Corp.

were the three worst performers in the S&P 500, all tumbling more than 10%.

SVB’s woes have highlighted a consequence of rising interest rates for some lenders. Rising rates have led to a slump in bond prices, meaning many banks that hold large quantities of bonds are sitting on large unrealized losses. 

The issue spotlights the broader impact the Fed’s interest-rate increases are having on the economy and banks in particular, said Altaf Kassam, head of investment strategy and research for Europe, the Middle East and Africa at State Street Global Advisors.

“The broader worry is that not just Silicon Valley Bank but that in the broader economy banks lent a lot in the good times when rates were so low, which as rates have now risen so dramatically, is going to come back to haunt them,” he said.

Those concerns were showing signs of spreading overseas Friday.

Deutsche Bank,

Société Générale

and

Credit Suisse

all fell at least 4%. The pan-continental Stoxx Europe 600 fell 1.4%.

In Hong Kong, the Hang Seng Index fell 3%, while in Japan the Nikkei 225 declined 1.7%. China’s Shanghai Composite Index fell 1.4%.

In commodity markets, Brent crude, the international oil benchmark, rose 1.5% to settle at $82.78.

Write to Jack Pitcher at jack.pitcher@wsj.com Will Horner at william.horner@wsj.com 

Corrections & Amplifications
Western Alliance Bancorp was one of several banks whose stocks plunged more than 20%. An earlier version of this article misspelled the company name as Western Alliance Bancorop. (Corrected on March 10)