Stocks tumble as Wall Street wonders what will break next

• Published date: 11 March 2023
• Publication title: The Korea Times

Fear rattled Wall Street, and stocks tumbled Friday on worries about what's next to break under the weight of rising interest rates following the biggest U.S. bank failure in nearly 15 years.

The SP 500 dropped 1.4 percent to cap its worst week since September. That's despite a highly anticipated report Friday showing pay raises for workers are slowing and other signals Wall Street wants to see of cooling pressure on inflation.

The Dow Jones Industrial Average fell 345 points, or 1.1 percent, while the Nasdaq composite sank 1.8 percent.

Some of the market's sharpest drops again came from the financial industry, where stocks tanked for a second day.

Regulators took over Silicon Valley Bank in a surprise midday move after shares of its parent company, SVB Financial, plunged more than 60 percent this week. The company, which served the industry surrounding startup companies, was trying to raise cash to relieve a crunch. Analysts have said it was in a relatively unique situation, but it's still led to concerns a broader banking crisis could erupt.

Friday's struggles came amid what strategists in a BofA Global Research report called "the crashy vibes of March." Markets have been twitchy on worries that high inflation is proving difficult to subdue, which could force the Federal Reserve to reaccelerate its hikes to interest rates.

Such hikes can undercut inflation by slowing the economy, but they drag down prices for stocks and other investments. They also raise the risk of a recession later on.

Higher rates tend to hit hardest on investments seen as the riskiest and most expensive, such as cryptocurrencies and the furor around money-losing Silicon Valley startups.

"There are starting to be cracks that are appearing," said Brent Schutte, chief investment officer at Northwestern Mutual Wealth. "SVB is a warning for the Fed that their actions are beginning to have an impact."

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's effectively pulling money out of the economy, something Wall Street calls "liquidity," which can tighten the screws on the system.

"This 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," Schutte said.

Wall Street already in February gave up on hopes that cuts to interest rates could come later this year. Worries then flared this...