Daily Market Color

Bank Stocks in Focus while Rates Plummet

Treasury yields plummet ahead of Friday’s nonfarm payrolls. Today’s banking selloff soured market sentiment and sent Treasury yields plummeting as a result, the 2-year declining over 20bps to 4.87% while the 10-year fell 9bps to 3.90%. The move came ahead of tomorrow’s nonfarm payrolls and unemployment data, where investors will look for signs of a slowing labor market in hope for a less aggressive Fed hiking schedule going forward. Elsewhere, equities suffered today, with the NASDAQ Composite falling over 2% while the S&P fell 1.85%.

SVB troubles move bank stocks, but why? SVB Financial Group (NASDAQ: SIVB) stock was down ~60% today, driven by large losses on its securities portfolio forcing a share issuance. Bank stocks were broadly down on the news today, with the KRE regional banking index down 8.13% on the day, and the big 4 American banks seeing declines of about 4-6%. Observers have mixed opinions about the market reaction. The situation puts front-and-center the realities of large HTM portfolio losses on bank capital, but analysts have noted that SVB is likely not a suitable comparison to most banks impacted by today’s movements, especially larger institutions which have much more diverse capital stacks, funding bases and earnings streams. Large bank stocks, while down on the day, are still trading at or above book value, indicating continued market optimism about future performance, with the notable exception of Citigroup which has consistently underperformed over past years due to unrelated and well documented structural issues.   

Day ahead. Nonfarm payrolls and unemployment data will lead a busy session at 8:30 AM. Nonfarm payrolls is expected to decline to 225k after coming in at 517k last month, while the unemployment rate is expected to remain unchanged at 3.4%.

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