Silicon Valley Bank and its impact on the US stock market

Wall Street went down on Thursday

Yesterday was a negative day for the US stock market and all three major indexes reported losses.

The S&P 500 finished at -1.85%, the Nasdaq ended the trading session at -2.05% and the Dow Jones closed at -1.66%.

Worries regarding the health of the banking sector have driven the selloff.

The investors' sentiment is fear, as indicated in the graph below:

Sentiment indicator - Fear & Greed Index

The market sentiment is 34, in “Fear” mode.

The case: Silicon Valley Bank

The Silicon Valley Bank is a technology-focused lender institution located in Santa Clara, California.

During the pandemic, in 2021, the deposits and the bank's assets significantly grew and the majority of the liquidity has been used for buying the U.S. Treasurys bond and other government-sponsored debt securities.

The Federal Reserve's action to reduce inflation by increasing the interest rates greatly impacted the bond holdings that started to lose value over time. For this reason, the Silicon Valley Bank had an important and fast decline in deposits.

Yesterday's selloff on the US stock market has been driven by the loss of $1.8bn circa by the SBV because it has been forced to sell part of its portfolio of securities to cover up the decline in customer deposits.

The investors' worry is that other Banks will be following the Silicon Valley Bank because all the banks have holdings in long-dated securities, which are no longer profitable.

That's why the shares of the four US biggest banks, JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) have been particularly impacted by the difficulties of SBV, registering a significant loss of more than 4% in one day.

What to watch today

The Bureau of Labor Statistics will release today at 13:30 GMT the U.S. Nonfarm Payrolls for the month of February.

At the same time will be announced the U.S. Unemployment Rate.

Both data are crucial to understanding the labour market strength and having a clue regarding the Federal Reserve's next interest rate hike to fight inflation.

Over the past two days Jerome Powell, Fed Chairman, said that if the economy and the inflation are not cooling down there may be an acceleration in rate increases.

Markets will continue to be volatile today, due to these events.

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