U.S. stocks notched their worst day in two weeks after a rout in bank shares picked up steam on concerns pockets of trouble in the sector could portend broader dangers. Treasuries rallied.

The S&P 500 fell to the lowest since Jan. 19 with financial companies in the index plunging more than 4 per cent. The KBW Bank Index, which includes regional lenders, plunged 7.7 per cent. Banks came under fire after Silvergate Capital Corp. collapsed overnight amid growing scrutiny in Washington. SVB Financial Group plummeted by a record amount following a stock sale to shore up losses.

“Everybody has been concerned that higher interest rates will lead to higher defaults at some point in 2023, and this raises those questions even more,” said Matt Maley, chief market strategist at Miller Tabak + Co.

Cryptocurrencies slid with Bitcoin falling the most since November amid Silvergate’s meltdown.

“Banks and semis are two groups that historically have been very good leading indicators. Typically, markets can do OK if either of them are languishing, but when one of them is having an outsized move it’s usually wise to listen,” said Jonathan Krinsky, chief market technician at BTIG. “In this case, the outsized move is clearly banks to the downside.”

Stocks erased early session gains after Thursday’s data showed weekly jobless claims had risen to 211,000 during the week ending March 4, ahead of expectations for 195,000 and marking the first time claims surpassed 200,000 since early January.

“This is a tiny glimmer of hope that maybe the U.S. labor market isn’t quite as tight as the other data points are saying,” Fiona Cincotta, senior financial markets analyst at City Index, said by phone. “This is a preshow before the main event.”

The numbers set the stage for Friday’s monthly jobs report, with even just slightly stronger-than-forecast figures expected to cement bets for a bigger hike at the March 21-22 Fed meeting. Economists project a 225,000 increase in February payrolls, about half January’s blockbuster pace, but a figure in that range would confirm the U.S. economy continues to add jobs at a strong rate. 

A softer-than expected number could soften wagers on a half-point move in March, and tilt expectations back to a quarter-point hike. 

“The market had to do a pretty quick job of repricing higher rate expectations from the Fed after a couple of days of Chair Powell’s testimony on Capitol Hill,” said Art Hogan, chief market strategist at B. Riley Wealth. “We now become data-dependent until the Fed meets.”

Two-year yields’ premium over their 10-year equivalent narrowed to around 97 basis points, having surpassed 110 basis points earlier this week. The inversion is considered a reliable recession harbinger.

Key events this week:

• Bank of Japan policy rate decision, Friday
• U.S. nonfarm payrolls, unemployment rate, monthly budget statement, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.8 per cent as of 4:01 p.m. New York time
• The Nasdaq 100 fell 1.8 per cent
• The Dow Jones Industrial Average fell 1.7 per cent
• The MSCI World index fell 1.2 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.3 per cent to US$1.0580
• The British pound rose 0.6 per cent to US$1.1919
• The Japanese yen rose 0.9 per cent to 136.14 per dollar

Cryptocurrencies

• Bitcoin fell 8.2 per cent to US$20,208.79
• Ether fell 8.2 per cent to US$1,425.02

Bonds

• The yield on 10-year Treasuries declined seven basis points to 3.92 per cent
• Germany’s 10-year yield was little changed at 2.64 per cent
• Britain’s 10-year yield advanced three basis points to 3.80 per cent

Commodities

• West Texas Intermediate crude fell 1.4 per cent to US$75.56 a barrel
• Gold futures rose 0.9 per cent to US$1,834.90 an ounce