NEW YORK (Reuters) – U.S. stocks rebounded on Tuesday as broadly targeted inflation data and easing tensions about contagion in the banking sector lowered expectations about the size of an interest rate hike at the Federal Reserve’s monetary policy meeting next week.
All three major US stock indices closed in positive territory, after several sessions of risk aversion turmoil driven by the implosion of Silicon Valley Bank and Signature Bank, and concerns about contagion.
Financial stocks recovered some losses, with the S&P 500 Banks Index (.SPXBK) coming back from the most severe one-day sell-off since June 2020.
Fears of bank contagion subsided on Tuesday as reassurances from US President Joe Biden and other global policymakers vowed to contain the crisis.
“The market has had a chance to digest some of the news over the past couple of days,” said Matthew Keator, managing partner at Keator Group, a wealth management firm in Lenox, Massachusetts. “(Investors) see coordinated efforts with various government agencies, and in hindsight, they feel as though things have contained themselves a bit.”
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The Labor Department’s Consumer Price Index report showed that consumer prices eased in February, largely in line with market expectations, with headline and core measures posting a welcome year-on-year decline.
However, inflation has a long way to go before approaching the central bank’s average annual target of 2%.
But signs of economic weakness, along with a regional bank panic, have increased the odds that the Federal Reserve will implement a modest 25 basis point increase in its key interest rate at the close of its two-day policy meeting on March 22.
[1/4] Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, US, March 14, 2023. REUTERS/Brendan McDiarmid
“Part of the stabilization today is people feeling as though the Fed may backtrack on some of the optimistic forecasts that followed Chairman Powell’s comments last week,” Kittor added.
“If the Fed is not careful, it could cause some unintended shocks to the system,” he said.
The shockwaves following the closings of Silicon Valley and Signature Bank, which prompted Biden to vow to contain the crisis and ensure the integrity of the US banking system, continue to reverberate across the sector.
The S&P 500 Banking Index (.SPXBK) lost reclaimed territory to a drop on Monday, its biggest one-day drop since June 2020.
According to preliminary data, the Standard & Poor’s 500 index rose 64.26 points, or 1.67%, to close at 3920.02 points, while the Nasdaq Composite Index rose 239.71 points, or 2.14%, to 11428.55 points. The Dow Jones Industrial Average rose 326.66 points, or 1.03%, to 32,145.80 points.
Shares of First Republic Bank (FRC.N) rose.
Meta Platforms Inc (META.O) announced 10,000 job cuts in its second round of layoffs, sending its stock higher.
Ride-haling app rivals Uber Technologies Inc (UBER.N) and Lyft Inc (LYFT.O) jumped after a California state court ruling that revived a ballot measure that allows companies to treat drivers as independent contractors rather than employees.
United Airlines Holdings Inc (UAL.O) fell after the commercial carrier unexpectedly forecast a loss for the current quarter.
AMC Entertainment Holdings (AMC.N) has slipped between multiple trading stops in the wake of its shareholders’ vote in favor of converting preferred shares into common shares.
Additional reporting by Stephen Culp in New York Additional reporting by Shubham Batra and Amruta Khandekar in Bengaluru Editing by Anil D’Silva and Matthew Lewis
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