What does Silicon Valley bank mean to the markets?

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The collapse of two banks triggered a flurry of activity from financial regulators.

• The Fed will create a term bank financing program that will lend money to the SVB. This ensures that people have access to their deposits of more than $250,000 and prevents widespread economic fallout.

• Then on Monday morning, regulators shut down Signature Bank — one of the key banks in the cryptocurrency industry — citing systemic risks. All deposits will be made in full, in accordance with federal regulators.

• As for the US jobs numbers released on Friday – remember that? – revealed that US non-farm payroll growth slowed to 311,000 in February, below January’s 504,000 but still more than forecasts of 225,000. In signs that the labor market may be slowing, the unemployment rate was higher than expected while wage growth slowed. .

• forefront A big inflation report and any possible fallout from the SVB woes will be what investors are looking for next week. “It’s going to be a major driver of the market and it’s going to set the tone for the market,” said Michael Aron, chief investment analyst at State Street Global Advisors.

The February jobs report was supposed to be the news event for Friday. Then there was a bank crash. It’s hard to beat that in terms of impact. There’s a lot to unpack today, so bear with me.

Let’s start with the original hero of the day, the jobs report. At first glance, it is not promising for people worried about inflation. The number of jobs created was higher than Dow Jones estimated. But go below the surface, and cracks in the foundation become apparent. Average hourly earnings did not rise as much as expected, while the unemployment rate rose to 3.6%, above expectations of 3.4%. In short: some good news, and some bad news, if you’re an investor. “There is something for everyone out there,” said Liz Ann Saunders, chief investment analyst at Charles Schwab.

By itself, the jobs data has been mixed enough that the Federal Reserve is considering a half-percentage-point hike in interest rates. But wait – bank crash! And not just any regional bank, but a Silicon Valley bank, which is a springboard for venture-backed tech startups. We can consider SVB the first (high-profile) victim of rising interest rates.

But the good thing – if there can be anything good from the bank’s collapse – is that regulators have decided to step in to protect deposits. The move indicates that the Fed is aware of the potential for wider contagion in the economy and may slow its hikes, just so as not to inadvertently remove more banks. (Case in point: at the time this newsletter was published on Monday morning, financial regulators announced that they would close a second bank, New York-based Signature Bank.)

This may explain why markets fell less sharply on Friday than they did earlier in the week when Federal Reserve Chairman Jerome Powell suggested higher interest rates are on the table. On Friday, the Dow Jones Industrial Average lost 1.07%, the S&P 500 fell 1.45% and the Nasdaq Composite fell 1.76%.

Of course, the markets may still be digesting the shock waves before selling. However, I suspect that hopes for lower rates as a result of the SVB collapse may keep the markets afloat. Likewise, CNBC’s Jim Cramer argued that there is nothing more deflationary than the collapse of a heavily indebted bank – which could still be in the hands of the Fed. In fact, the two-year Treasury yield — which reflects investors’ expectations about interest rates — fell by 46 basis points in two days, the biggest move since the 2008 financial crisis.

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