Stocks tumbled Friday as tech-focused lender Silicon Valley Bank shut down following losses in its bond portfolio, prompting the biggest bank failure since the global financial crisis and sending shockwaves through the banking sector.
The Dow Jones Industrial Average dropped for a fourth consecutive day, finishing 345.22 points lower, or 1.07%, to close at 31,909.64. The S&P 500 lost 1.45% to settle at 3,861.59. The Nasdaq Composite shed 1.76% to end at 11,138.89.
All the major averages capped off the week with losses. The Dow fell 4.44% to post its worst weekly performance since June. The S&P dropped 4.55%, while the Nasdaq lost 4.71%.
Regulators took control of Silicon Valley Bank on Friday, after shares tumbled Thursday and the bank struggled on Friday to find another company to buy it. Regional bank stocks tumbled in the wake of Silicon Valley Bank's demise, with the SPDR S&P Regional Banking ETF lost nearly 4.4%. For the week, the regional bank fund lost about 16%, its worst week since March 2020 as the pandemic hit.
"You had a major U.S. bank collapse, the biggest bank failure since 2008, inevitably that's going to spook the market," said Sylvia Jablonski, CEO and chief investment officer of Defiance ETFs. The failure, she added, is also fueling concern among investors over whether the contagion spreads beyond SVB.
Several bank stocks were repeatedly halted on Friday, including First Republic, PacWest and crypto-focused Signature Bank. First Republic dropped 14.8%, and PacWest shed 37.9%. Some bellwether bank stocks suffered smaller losses even as SVB's fallout wreaked havoc on regional names. Goldman Sachs and Bank of America fell 4.2% and 0.9% respectively. JPMorgan held onto a 2.5% gain.
"This is gamebook play, where traders and shorter term investors don't want to be long over the weekend," said Rich Steinberg, chief market strategist at The Colony Group.
The turmoil among bank stocks overshadowed a February jobs report, which gave some hints that inflation could be slowing. Payrolls increased more than expected, but investors focused on the smaller-than-expected gain in wages, which may cause the Federal Reserve to rethink its aggressive stance on rate hikes.
Silicon Valley Bank's failure Friday also harmed an industry that on its face is closer to the frontiers of medical science than it is banking or finance — biotechnology.
For some biotech companies, especially smaller, less-tested startups, SVB was a vital lifeline and conduit to Wall Street finance. SVB also held some of the companies' cash on hand.
"Within biotech, SVB has been heavily involved in the investment banking activities of numerous companies," a note out Friday from analysts led by Bank of America's Jason Gerberry noted.
As a result, the SPDR S&P Biotech ETF (XBI) slumped 3.9% Friday — but at one point in mid-afternoon trading was down by as much 6.2%.
As so often happens on Wall Street, the reaction is to shoot first and ask questions later. Silk Road Medical (SILK) fell 4.1% Friday. Silk told Mizuho Securities, it was "Monitoring the situation very closely" and held some "operating cash at SVB, but the bulk of its cash is at a custodian (a larger US bank)."
Shock Wave Medical (SWAV) slid 4.2% Friday, telling Mizuho that it "has operations accounts at SVB and with a large bulge bracket bank." Mizuho said that "SWAV exposure is technically limited ... they are still working to further reduce exposure and move most everything over to the large bulge bracket bank. "
Ultragenyx Pharmaceutical (RARE) dropped 2.9% despite telling analysts at Stifel that its cash holding was spread across several banks, with the "smallest amount," less than $5 million, at SVB. Its "exposure should be immaterial to the $900M reported (YE22)," Ultragenyx told Stifel.
— Scott Schnipper, with reporting by Michael Bloom
Stocks finished lower for the week after the collapse of Silicon Valley Bank fueled a broad market selloff.
The Dow Jones Industrial Average dropped 345.22 points lower, or 1.07%, to close at 31,909.64. The S&P 500 lost 1.45% to settle at 3,861.59. The Nasdaq Composite shed 1.76% to end at 11,138.89.
All the major averages ended the week with losses. The Dow shed 4.44% for its worst weekly performance since June. The S&P dropped 4.55%, while the Nasdaq lost 4.71%.
— Samantha Subin
The selloff in bank shares this week could create an opportunity for investors to snatch up some quality banks at good prices, said Gina Bolvin, president of Bolvin Wealth Management.
"Right now we're neutral on financials, but, as they get cheaper, and as they're selling off, there may be an opportunity to invest in some of the larger, more quality banks," she said.
These names typically have more diversified businesses, she said, adding that turmoil at SVB is unlikely a "systematic" issue.
— Samantha Subin
Friday's jobs and wage data showed signs that previous interest rate hikes from the Federal Reserve have had the intended impacts of cooling the economy, said Edward Moya, senior market analyst at Oanda. Paired with the shut down of Silicon Valley Bank, he said the likelihood of the central bank moving back to a half-percentage point interest rate hike at the next policy meeting is unlikely.
"At the end of the day, traders are seeing this cooling/hot payroll report as confirmation that Fed policy is restrictive and that the their tightening work is almost done," Moya said. "If we didn't have SVB's failure and contagion risk the case for a half-point rate hike would be valid."
"The focus will fall on SVB contagion risks and Tuesday's inflation report," he added. "As long as we don't see a scorching hot inflation report, the Fed should continue with its quarter rate point hiking pace."
— Alex Harring
Shares of United Airlines could be in for big gains, according to Barclays.
Analyst Brandon R. Oglenski upgraded the airline to overweight. He also raised its price target to $80 from $52, implying 53.5% upside from Thursday's closing price.
"Focused leadership and ambitious earnings plans coupled with outsized exposure to growing and lucrative long-haul markets drives attractive risk/reward in UAL shares despite incrementally risky balance," Oglenski wrote in a Friday note.
CNBC Pro subscribers can read more about his upgrade here.
— Hakyung Kim
Treasury yields have moved dramatically over the past two days, as investors rushed to the safety of bonds for fear of systemic risks in the financial system.
The plunge in yields was on par with the sharp two-day decline in September, 2008, when Lehman Brothers failed.
The 2-year Treasury yield, which moves opposite price, had rocketed higher earlier in the week when Fed Chairman Jerome Powell said the Fed may have to raise rates more than anticipated.
But as investors feared Silicon Valley Bank's problems would cause contagion, they bought bonds. As a result, the 2-year yield fell by 46 basis points in just two days, the biggest such move since the financial crisis.
--Patti Domm
The S&P 500 only has to fall another 0.8% below its current level in order to go negative on the year.
At this year's intraday high of 4195.44 on Feb. 2, the S&P 500 was 9.3% above the 2022 close of 3839.5.
Since that February intraday high, the S&P 500 has fallen as much as 8.3% to Friday's intraday low of 3846.32 — only a short, stone's throw from the Dec. 30, 2022 close of 3839.50.
So far this week, S&P 500 Financials are 8.2% lower; S&P 500 Materials stocks are down 7.5%; and S&P 500 Real Estate stocks are off 6.7% — all far worse than the S&P 500 decline of 4.4% this week.
— Scott Schnipper
Investment bank TD Cowen believes Silicon Valley Bank's failure is more about its "unique business model" rather than broader issues in the U.S. banking system.
"We continue to expect regulators to revamp liquidity rules in response to this failure, but do not expect any change for how most banks treat unrealized losses," analyst Jaret Seiberg wrote in a Friday note to clients. Financial regulators closed SVB earlier today and took control of its deposits, the Federal Deposit Insurance Corp. announced.
Seiberg compared SVB to the collapse of crypto-focused Silvergate Capital, which announced on Wednesday that it will shut down operations and liquidate its bank. SVB was heavily focused on the tech and venture capital space, which was flooded with interest during 2021. Silvergate's shares skyrocketed that year, off of a similar rush into cryptocurrencies and speculative assets.
Because SVB was less dependent on retail deposits compared to a traditional bank, Seiberg said the bank was more exposed to interest rate risk as funding got more expensive, but its assets were not increasing in price.
"If anything, this appears to be a typical bank failure like we saw during the Savings & Loan crisis," Seiberg wrote in the note. "The only difference is that we are dealing with a bank that focused on technology rather than on real estate."
— Pia Singh
The Nasdaq Composite extended losses in afternoon trading and was last trading lower by 2.08%.
DocuSign, which was plunging on earnings, led the losses, trading down 21%. Atlassian, Datadog and Marvell were the other big losers in the tech-focused index.
The Nasdaq is on pace to end the week down about 5%, but is still up for the year.
— Tanaya Macheel
Roblox shares were up 2.3% on Friday before the bell after Jefferies upgraded the stock to buy from hold.
"We are upgrading RBLX on a favorable narrative (top line growth w/ margin inflection & an advertising option) supported by strong net bookings expansion and underlying user metrics.," analyst Andrew Uerkwitz wrote in a client note on Friday.
"With regular rollouts of new user and creator features, we are comfortable RBLX will grow through NT competitor and macro pressures. We expect it to remain among the fastest growing internet companies earning multiple expansion, higher estimates, and investor interest," he added.
CNBC Pro subscribers can read more about his upgrade here.
— Hakyung Kim
The broader market sold off on Friday following news of Silicon Valley Bank's failure, and small caps weren't spared any pain.
The Russell 2000, the benchmark index for small cap companies, shed more than 3% on Friday afternoon. In comparison, the S&P 500, the Nasdaq Composite and the Dow Jones Industrial Average were each down more than 1% for the day.
The numbers are even bleaker on the week, with the Russell on pace to lose more than 8%. The major averages are on track to lose more than 4%.
Notable losers in the small cap index include shoe manufacturer Allbirds, which plummeted more than 45%. Loyalty Ventures cratered more than 63%. Silvergate Capital, the crypto focused bank that's on its way to liquidation, dropped more than 16%.
-Darla Mercado, Gina Francolla
The KBW Bank Stock Index has fallen nearly 12% over the last three days amid the Silicon Valley Bank shutdown. But that doesn't mean a broad and sustained rally will follow, Canaccord Genuity warned.
"While this level of near-term weakness has generally suggested that selling has become extreme enough to generate an oversold bounce, history ultimately points to renewed weakness in the months ahead," analyst Tony Dwyer said in a Friday note to clients.
The index has only posted three-day slides that large during the middle of major market declines in 1998, 2002, 2008, 2011 and 2020.
When looking at those historical cases, the S&P 500 typically saw a near-term rally with an average gain of 10.7% from the three days when the KBW Bank Stock Index tumbled.
But that short-term rally always gave way to a slide, with the S&P 500 moving to 13.4% lower on average than the level it sat at following the initial bank stock fall. In other words, Dwyer said the broader market typically sees a "bounce then trounce" in the aftermath of a downturn among financial stocks.
— Alex Harring
The shutdown of Silicon Valley Bank on Friday marks the largest bank failure in history since the Global Financial Crisis.
Financial regulators took control of the tech-focused lender after the bank said earlier this week that it needed to raise more than $2 billion in capital to offset losses.
SVB served as a major bank for venture-backed companies already suffering from higher interest rates and a dwindling market for initial public offerings, hindering their ability to raise cash.
— Samantha Subin, Jesse Pound
These stocks are among those making the biggest moves in midday trading:
Click here to see more stocks making midday moves.
— Pia Singh
The leisure and hospitality sector was the star of February's jobs report, adding more than 100,000 jobs.
However, there was weakness elsewhere in the economy, with information and manufacturing among the groups posting job losses.
"We're seeing a bifurcation of the economy between the goods and services sector," said Stever Rick, chief economist for CUNA Mutual Group.
— Jesse Pound
The Federal Deposit Insurance Corporation said Friday that Silicon Valley Bank was closed by regulators.
"To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank," the FDIC said in a statement, adding that depositors will have access to their deposits "no later than Monday morning.
— Jesse Pound, Fred Imbert
Investor focus has now shifted to Tuesday's release of the February consumer price index, as the last big data inflation report for the Federal Reserve to consider when it meets March 21 and 22.
The February employment report, released Friday, showed a surprisingly large 311,000 jump in payrolls. But other factors in the report, like smaller-than-expected average hourly wage growth of 0.2% and a jump in the unemployment rate were viewed as encouraging by strategists who were hoping to see some cooling of the labor market.
"Wage hikes are slowing. That ultimately might be the best result," said Steve Sosnick of Interactive Brokers. "People stay employed but as an economy, we're not seeing immense wage pressure."
According to FactSet, economists expect CPI rose by 0.4% in February, or 6% on an annualized basis. That compares to a 0.5% gain in January, or 6.4% year-over-year. Strategists said investors want to see that the trajectory of inflation continues to be lower.
"It will be the last CPI report before the Fed meeting, and I think that will be a key market mover and set the tone for the market and volatility next week," said Michael Arone, chief investment strategist at State Street Global Advisors. Arone expects the Fed to raise rates by a quarter point, but a very hot number could boost expectations for a half percentage point hike.
The market was pricing in just a 30% chance for a half percentage point increase on Friday morning.
— Patti Domm
About 16%, or 31 stocks, in the S&P 500 hit lows not seen in at least 52 weeks on Friday.
Here's the full list:
No S&P 500 stocks hit new 52-week highs on Friday amid the broader market slide.
— Alex Harring, Christopher Hayes
Regional banks are on pace to cap off their worst week since 2008, with the SPDR S&P Regional Banking ETF last down more than 19% for the week.
If shares close at this level, that would mark the worst week for the KRE since October 2008, shortly after the start of the Financial Crisis, when Lehman Brothers declared bankruptcy.
As of 10:25 a.m. Friday, the KRE was down about 4%, led to the downside by declines from First Republic Bank, PacWest, Western Alliance and Signature Bank.
— Samantha Subin
Large cap tech names slid on Friday, with the S&P sector shedding 1%.
Microsoft shares slumped 0.7%, while Apple dropped 0.3%. The tech-heavy Nasdaq Composite was also the laggard among the three major indexes, declining 0.6%.
Chip stocks also took their lumps, with the iShares Semiconductor ETF losing 0.9%. Nvidia and Advanced Micro Devices fell more than 1% each.
-Darla Mercado