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Here's Why SVB Financial Group Is Plunging Today

By Matthew Frankel, CFP® – Dec 6, 2018 at 4:07PM

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The decline is likely prompted by a combination of two main factors.

What happened

SVB Financial (SIVB -0.91%), the holding company for Silicon Valley Bank, which specializes in banking services for entrepreneurs and private equity, is having a bad day on Thursday. As of 3:30 p.m. EST, shares are down by about 10%, and the stock reached its lowest level since November 2017.

So what

There are two driving forces that are likely causing today's decline. First, the financial sector has been extremely weak during the recent market volatility. The sector is down by more than 2% today alone, roughly twice the decline of the overall S&P 500.

Man looking at financial chart in frustration.

Image source: Getty Images.

In a nutshell, investors are concerned about the partial inversion of the yield curve and the impact it could have on bank profitability. This general sector weakness is not helping SVB Financial.

Second, several high-profile analysts have lowered their price targets on the stock today. Specifically, Jefferies maintained its buy rating but cut its price target by $10 to $278. Wells Fargo also maintained its outperform rating, but dramatically slashed its target from $345 to $300. These moves are likely causing investor pessimism, which we're seeing reflected in the stock price.

Now what

From a long-term investor's perspective, analyst price-target changes tend to be nonevents, unless there's some fundamental change with the company behind the stock. That doesn't appear to be the case here. SVB Financial's Thursday plunge seems to be due to an ugly combination of sector headwinds and analyst pessimism, rather than anything specifically wrong with the bank.

SVB Financial provides credit and banking services to The Motley Fool. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends SVB Financial Group. The Motley Fool has a disclosure policy.

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