(New York) The New York Stock Exchange ended down Thursday, worried about the difficulties of the Californian bank SVB to the point of sanctioning the entire banking sector, in a feverish market before the publication of the monthly employment report on Friday.
The Dow Jones dropped 1.66%, the NASDAQ index, 2.05%, and the broader S&P 500 index, 1.85%.
Wall Street had opened higher, supported by higher-than-expected weekly unemployment figures that suggest a cooling in the labor market, the indices went into the red and even accelerated into negative at the end of the session.
In question, the Silicon Valley Bank, a Californian establishment whose parent company, SVB Financial Group, announced on Wednesday a major capital increase of 2.25 billion dollars.
A privileged partner of the technology sector, SVB is thus seeking to increase its liquidity to strengthen its balance sheet, weakened by customer withdrawals.
The group also sold in a hurry, to do this, a portfolio of 21 billion dollars of financial securities, which earned it an estimated loss of 1.8 billion.
“SVB is the defining element of today’s session,” explained Steve Sosnick of Interactive Brokers. The group lost, in a single day, 60% of its value (-60.41%).
“People realized that the problems SVB is experiencing could happen to the whole banking industry,” he explained.
Banks generally borrow short-term to make medium- and long-term loans. “It’s not a good model when you’re in a situation of an inversion of the yield curve”, underlined Steve Sosnick.
The yield on 2-year US government bonds is thus well above the 10-year rate, the spread being at its highest level for more than 40 years. The cost of money for banks is thus significantly higher than the rates at which they lend, which affects their margins.
The effect was reinforced by the fact that the parent company of another bank, Silvergate Bank, announced on Wednesday that the establishment was going into liquidation. An epilogue attributed, in this case, to the fact that the bank was closely linked to the cryptocurrency community, which has been in turmoil for a year.
“There seem to be cracks in the regional banks,” noted Art Hogan of B. Riley Wealth Management. “Everyone is looking for what will be the next problem. »
The entire banking sector suffered from the sequence, from JPMorgan Chase (-1.23%) to Bank of America (-6.20%), via Wells Fargo (-6.18%) and Citigroup (-4, 10%).
The SVB episode sparked a “flight to assets deemed the safest”, “away from equities”, observed Art Hogan of B. Riley Wealth Management.
Among the safe assets, bonds jumped at the end of the session, causing a violent drop in bond rates, which move in the opposite direction to their prices.
The yield on 2-year government bonds, which had soared at the start of the week, fell by 20 basis points (0.2 percentage points), a very rare magnitude in this market, to 4.87% against 5 07% on Wednesday at the close.
At the other end of the spectrum, bitcoin fell by 7.93% and took with it all the big names in the industry, whether it was the Coinbase platform (-7.81%) or the specialist in cryptocurrency “mining” Riot. Platforms (-12.22%).
Among the few stocks to emerge from the doldrums on Thursday, General Electric (+5.27%) which confirmed its forecasts for the 2023 financial year. The conglomerate also reaffirmed that it intended to IPO in early 2024, GE Vernova, combining its assets in the energy sector.
Toronto Stock Exchange
The Toronto Stock Exchange fell more than 250 points, or more than 1%, on Thursday, dragged down by weaknesses in the financial, industrial and telecommunications sectors.
The Toronto Stock Exchange’s S&P/TSX Composite Index closed down 259.81 points, ending at 20,086.72 points.
In the currency market, the Canadian dollar traded at an average rate of 72.52 cents US, down from 72.54 cents US on Wednesday.
On the New York Commodities Exchange, crude oil prices fell 94 cents to US$75.72 a barrel, while natural gas fell 1 cent to US$2.54 per million. BTUs.
The price of gold rose US$16.00 to US$1834.60 per ounce and copper rose 1 cent to US$4.04 per pound.