Day Traders Diary

3/9/23

The major averages took a hit, accelerating the losses in the final hour of trading Thursday as banks and other financials sold off, and investors braced for a key payroll report Friday that could set the direction of interest rates. The Dow Jones Industrial Average dropped 543 points, or 1.6% while the Nasdaq Composite shed 237 points or 2%. The S&P 500 slid 73 points or 1.8%. The losses pushed that S&P financial sector down 4% for its worst day since June 2020. Financial bellwethers Bank of America and Wells Fargo also took a hit, tumbling more than 6% each.

SVB Financial cratered 61% after announcing a $1.75 billion stock sale, pushing its market capitalization to a little over $6 billion and dragging down other regional bank names. Silvergate shares plummeted 30% on news that it's shutting down operations.

"The Fed has changed the narrative that drove stocks higher for most of January and late December," said Adam Sarhan, CEO of 50 Park Investments. "The market rallied on the assumption that the Fed would stop raising rates, would pause in the summer — or sometime in the near future. Powell made it very clear that's just not the case."

No data seems to suggest that the Fed should stop hiking rates, Sarhan said, adding that many investors are selling into the jobs report to reduce their risk, and are finding value in less risky assets like bonds offering an attractive yield.

"The market is looking for a bullish catalyst and it can't find one," he said.

Investors received more news on the state of the labor market ahead of Friday's closely watched nonfarm payrolls report. Jobless claims for the week ended March 4 rose more than expected, signaling that the labor market may be starting to slow. In retrospect, ADP's payrolls report and JOLTS data on Wednesday suggested a resilient economy, heightening fears that the Fed needs more hiking to slow it.

Some economists, including those at Citi, expect a positive surprise to the upside come Friday's payrolls data, following January's blowout number. Strong jobs growth could mean bad news for the market, wrote Citi research strategist Alex Saunders in a Wednesday note to clients.

"Given that good news is bad news for markets, we think this would likely cause equities to sell-off further and support the case for an outsize Fed hike," Saunders said.

Thursday's moves come a day after Powell reiterated his warning message to lawmakers that the central bank may raise interest rates higher than previously expected. While the Fed chair emphasized that no decision has been made regarding the March meeting, traders are bracing for a larger-than-expected hike following a batch of strong economic data in recent weeks.

As of Thursday morning, traders were pricing in a roughly 75% chance of a 50 basis point increase, according to the CME Group's FedWatch tool.