By Stephen Culp
NEW YORK (Reuters) - U.S. stocks closed sharply lower and Treasury yields extended their slide on Friday over fears of contagion in the financial sector and strong February employment data showing the economy added more jobs than expected.
All three major U.S. stock indexes ended the session down more than 1%, with the tech-laden Nasdaq suffering the largest percentage loss.
The indexes ended a tumultuous week significantly lower than last Friday's close. The S&P had its biggest weekly percentage loss since September, while the Nasdaq and the Dow notched their largest respective losses since November and June.
Shock waves continue to reverberate through global financial stocks after regulators closed SVB Financial Group following the bank's failed attempt to raise capital.
"Investors may be getting worried that the Fed is pushing things too far in one direction," said Sal Bruno, chief investment officer at IndexIQ in New York. "And with the yield curve as inverted as it is, that is generally not a good environment for banks."
The U.S. economy added a consensus-beating 311,000 jobs last month, while the unemployment rate unexpectedly ticked higher, along with the labor market participation rate.
Hourly wage growth cooled on a monthly basis, but gained some heat year-on-year, albeit not as much as economists predicted.
"There was something in (the jobs report) for everyone," Bruno added. "There's a case to be made for the Fed to be less aggressive if you look at the wage growth."
"But with payrolls coming in over 300,000, you could make the case that the Fed to needs to hike (interest rates) more because the economy is still running very hot," he said.
The data caps a week in which markets were preoccupied with Fed Chairman Jerome Powell's hawkish two-day testimony before Congress, which moved the needle toward the likelihood that the central bank will hike its key policy rate by 50 basis points this month.
Those expectations cooled following the jobs report.
At last glance, financial markets are pricing in a 42.5% chance of a 50 basis-point rate hike and a 57.5% chance of a smaller, 25 basis-point increase to the fed funds target rate at the conclusion of the March 21-22 monetary policy meeting.
Analysts now look to Tuesday's consumer prices data, which will flesh out the February inflationary picture.
(Graphic: Inflation - https://www.reuters.com/graphics/USA-STOCKS/jnvwyanmnvw/inflation.png)
The Dow Jones Industrial Average fell 345.22 points, or 1.07%, to 31,909.64, the S&P 500 lost 56.73 points, or 1.45%, to 3,861.59 and the Nasdaq Composite dropped 199.47 points, or 1.76%, to 11,138.89.
European stocks slid to a seven-week low over uncertainty regarding rising interest rates, and looming worries over the health of the U.S. banking sector.
The pan-European STOXX 600 index lost 1.35% and MSCI's gauge of stocks across the globe shed 1.40%.
Emerging market stocks lost 1.37%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.75% lower, while Japan's Nikkei lost 1.67%.
U.S. Treasury yields dropped for the second straight day as risk-averse investors sought safe haven amid brewing troubles in the financial sector.
"(There is) a growing crisis of confidence that has triggered a flight to safety," said Sam Stovall, chief investment strategist of CFRA Research in New York. "Investors are fearful of a bank contagion and have flocked to the safety of Treasuries, elevating the price but reducing the yields."
Benchmark 10-year notes last rose 61/32 in price to yield 3.6892%, from 3.923% late on Thursday.
The 30-year bond last rose 101/32 in price to yield 3.6899%, from 3.87% late on Thursday.
The greenback weakened against a basket of world currencies after the payrolls report hinted at cooling inflation and a slower pace of interest rate hikes from the Fed.
The dollar index fell 0.65%, with the euro up 0.54% toat $1.0637.
The Japanese yen strengthened 0.91% versus the greenback at 134.94 per dollar, while sterling was last trading at $1.2028, up 0.86% on the day.
Oil prices jumped after the jobs data, but registered a 3% drop on the week over rate hike jitters.
U.S. crude rose 1.27% to settle at $76.68 per barrel and Brent settled at $82.78 per barrel, up 1.46% on the day.
Gold prices jumped over 2% as the safe-haven metal benefitted from fears over potential crisis contagion in the banking sector.
Spot gold added 2.1% to $1,868.79 an ounce.