As a Result of Weak Jobs Data and Bank Woes, U.S. Stocks are Likely To Have Their Worst Week of 2023

US equities dipped on Friday as investors tried to interpret confusing signals from the February employment data, while Treasury rates and the currency plummeted on fears about banking sector contagion from Silicon Valley Bank's issues.

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What is happening?

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The S&P 500 is down more than 3.5%, putting it on course to have its greatest weekly drop of the year. The Dow fell more than 3.8%, while the Nasdaq fell over 4%. The S&P 500 is set to tumble for the fourth time in five weeks.

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What's driving markets

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The February U.S. employment report indicated that the labor market continued to expand at a solid rate last month, with the U.S. economy adding 311,000 jobs, more than the 225,000 projected by analysts surveyed by the Wall Street Journal. For the tenth consecutive month, hiring exceeded expectations.

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Nevertheless, average hourly salaries increased by 0.2%, slower than the 0.3% pace predicted by experts. That was also lower than the 0.3% rise seen in January. The unemployment rate increased to 3.6%, aided by a rise in labor-force participation.

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Together, the report sent the market "mixed signals," according to the study. According to Jake Jolly, head of investment analysis at BNY Mellon Investment Management, while the slowdown in pay growth provided some promise that inflation could be abating, the rate of job creation likely remained too rapid for the Fed's liking.

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There are enough conflicting signals in this data that it is impossible to draw any firm conclusions about the direction of travel, according to Jolly.

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We'll learn more concrete facts on inflation on Tuesday, so we need to wait and be patient, he added.

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The "totality" of the employment and inflation figures, according to Federal Reserve Chair Jerome Powell, will determine whether the institution decides to raise its policy interest rate by another 50 basis points at its meeting later in March.

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The likelihood that the Fed will raise interest rates by 50 basis points has slowed down during the past 24 hours after earlier in the week it increased. Traders now consider prospects of a 50 basis point rate rise in March as a "coin flip," according to Jason Pride, a chief investment officer of private wealth at Glenmede.

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As it fights the worst wave of inflation in four decades, the Fed is likely to view Friday's data as a "step in the right direction," but Pride continued that it is obvious that "the Fed still has much to do to get inflation re-anchored around its 2% target, which likely includes several more rate hikes over the next few months."

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The ongoing effects of Thursday's selloff in the banking sector, which saw the SPDR S&P Regional Banking ETF KRE plunge 8%, the worst decline since the beginning of the COVID-19 epidemic, were the second major market story on Friday. Early on Friday, the regional banking ETF was down a further 5%.

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Concerns over the stability of banks added to market concerns after SVB Financial (SIVB) announced plans to sell shares to bridge a roughly $2 billion hole left by the sale of a loss-making U.S. subsidiary. Portfolio of Treasury securities.

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U.S. Treasury Secretary Janet Yellen stated that she was keeping an eye on "a few institutions," including Silicon Valley Bank.

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After a drastic drop a day earlier, these ongoing concerns and the impact of the employment report continued to drag on Treasury rates on Friday, according to experts.

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The 2-year Treasury note's yield decreased by more than 25 basis points to 4.628%. The enormous inversion of the Treasury yield curve continues to be a factor in the problems facing banks. The ICE U.S. Dollar Index, which measures the value of the dollar against a group of competitors, fell 1.1% to 104.1.

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