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Job reports, hourly earnings and price data suggest inflation may be slowing even as bank troubles stir recession fears. But a bond-price drop could help lower mortgage rates.<\/span><\/span><\/p>\n<\/div>\n NEW YORK (AP) \u2013 Stocks are falling Friday as worries flare about the banking system and the painful effects of high interest rates meant to drive down inflation.<\/span><\/span><\/p>\n The S&P 500 was 0.7% lower in midday trading. It\u2019s heading for its worst week since September even though a highly anticipated report on Friday showed pay raises for workers are slowing and other signals Wall Street wants to see of cooling pressure on inflation.<\/span><\/span><\/p>\n The Dow Jones Industrial Average was down 159 points, or 0.5%, at 32,095, as of 12:10 p.m. Eastern time, while the Nasdaq composite was 0.9% lower. Some of the market\u2019s sharpest drops were again coming from the financial industry, where stocks tanked for a second day.<\/span><\/span><\/p>\n SVB Financial, which ran Silicon Valley Bank and served the industry surrounding startup companies, plunged more than 60% this week as it raised cash to relieve a crunch. Analysts have said it is in a relatively unique situation, but it\u2019s still led to concerns a broader banking crisis could erupt. Regulators took over the bank Friday and named the Federal Deposit Insurance Corp. its receiver.<\/span><\/span><\/p>\n Friday\u2019s struggles come amid what strategists in a BofA Global Research report called \u201cthe crashy vibes of March.\u201d Markets have been twitchy recently on worries that high inflation is proving difficult to drive down, which could force the Federal Reserve to reaccelerate its hikes to interest rates.<\/span><\/span><\/p>\n Such hikes can undercut inflation by slowing the economy, but they also drag down prices for stocks and other investments and raise the risk of a recession later on.<\/span><\/span><\/p>\n \u201cThere are starting to be cracks that are appearing,\u201d said Brent Schutte, chief investment officer at Northwestern Mutual Wealth. \u201cSVB is a warning for the Fed that their actions are beginning to have an impact.\u201d<\/span><\/span><\/p>\n The Fed has already raised rates at the fastest pace in decades and made other moves to reverse its tremendous support for the economy during the pandemic. It\u2019s effectively pulling money out of the economy, something Wall Street calls \u201cliquidity,\u201d which can tighten the screws on the system.<\/span><\/span><\/p>\n \u201cThis is a warning sign that the liquidity is draining, and the most vulnerable areas are starting to show it, which tells me the rest of the economy is not too far behind,\u201d Schutte said.<\/span><\/span><\/p>\n Wall Street already in February gave up on hopes that cuts to interest rates could come later this year. Worries then flared this week that rates are set to go even higher than expected after the Fed said it could reaccelerate the size of its rate hikes.<\/span><\/span><\/p>\n Friday\u2019s jobs report helped calm some of those worries, which led to some up-and-down trading. Overall hiring was hotter than expected, which could be a sign the labor market remains too strong for the Fed\u2019s liking despite the fastest set of rate hikes in decades.<\/span><\/span><\/p>\n But the data also showed a slowdown from January\u2019s jaw-dropping hiring rate.<\/span><\/span><\/p>\n More importantly for markets, average hourly earnings for workers rose by 0.2% in February from January. That was a slowdown from January\u2019s 0.3% gain, and it was lower than the 0.4% acceleration that economists expected. This number is crucial on Wall Street because the Fed is focusing on wage growth in particular in its fight against inflation. It worries too-high gains could cause a vicious cycle that worsens inflation, even though raises help workers struggling to keep up with rising prices at the register.<\/span><\/span><\/p>\n Among other signs of a cooling but still-resilient labor market, the unemployment rate ticked up and the percentage of Americans with or looking for jobs edged up by a tiny bit.<\/span><\/span><\/p>\n Such trends mean traders are swinging back their bets for the size of the Fed\u2019s next rate increase.<\/span><\/span><\/p>\n After largely thinking the central bank would go back to a hike of 0.50 percentage points later this month, traders are now betting on a coin flip\u2019s chance that it will stick with a more modest 0.25 point hike, according to CME Group.<\/span><\/span><\/p>\n Last month, the Fed slowed to that pace after earlier hiking by 0.50 and 0.75 points.<\/span><\/span><\/p>\n The expectations, along with worries about banks, helped send Treasury yields sharply lower.<\/span><\/span><\/p>\n The yield on the 10-year Treasury plunged to 3.73% from 3.91% late Thursday, a sharp move for the bond market. It helps set rates for mortgages and other important loans.<\/span><\/span><\/p>\n The two-year Treasury yield, which moves more on expectations for the Fed, fell to 4.69% from 4.87%. It was above 5% earlier this week and at its highest level since 2007.<\/span><\/span><\/p>\n Some of the sharpest drops on Wall Street came from banking stocks on worries about who else may suffer a cash crunch if interest rates stay higher for longer and customers pull out deposits. That would set up pain because a flight of deposits could force them to sell bonds to raise cash, right as higher interest rates knock down prices for those bonds.<\/span><\/span><\/p>\n Besides SVB Financial\u2019s struggles, Silvergate Capital also said this week it\u2019s voluntarily shutting down its bank. It served the crypto industry and had warned it could end up \u201cless than well-capitalized.\u201d<\/span><\/span><\/p>\n Stock losses were heaviest at regional banks. First Republic Bank tumbled 25.8%. It filed a statement with regulators to reiterate its \u201cstrong capital and liquidity positions.\u201d<\/span><\/span><\/p>\n Charles Schwab lost another 6.1% after dropping 12.8% Thursday \u201cas investors stretched for read-throughs\u201d from the SVB crisis, according to analysts at UBS. The analysts called them \u201clogical but superficial\u201d because of differences in how companies get their deposits.<\/span><\/span><\/p>\n Losses were more modest at the biggest banks, which have been stress-tested by regulators following the 2008 financial crisis.<\/span><\/span><\/p>\n Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission. AP Business Writers Joe McDonald and Matt Ott contributed.<\/span><\/span><\/p>\n<\/div><\/div>\n <\/p>\n <\/p>\n\nThe \u2018crashy vibes of March\u2019<\/span><\/span><\/h3>\n
New signs of slowing inflation<\/span><\/span><\/h3>\n