Wall Street wins as inflation cools, banking jitters subside

NEW YORK, March 14 (Reuters) – Wall Street rallied on Tuesday, as largely on-target inflation data and receding fears of contagion in the banking sector lowered expectations about the size of the rate hike at next week’s Federal Reserve policy meeting.

All three major US stock indices were green, but outside previous highs after several sessions of risk-off turmoil caused by the implosion of Silicon Valley Bank and Signature Bank, and contagion jitters.

Financial stocks recovered some of their resulting losses, with the S&P 500 Banks Index (.SPXBK) recovering from its strongest one-day sell-off since June 2020.

The KBW Regional Banking Index (.KRX) rose 3.1%.

Contagion fears for banks were allayed on Tuesday as US President Joe Biden and other global policymakers reassured that the crisis would come under control.

The Labor Department’s CPI report showed that consumer prices cooled in February, broadly in line with market expectations, with headline and key figures ushering in a welcome annual decline.

Still, inflation has a long way to go before approaching the central bank’s average annual target of 2%.

But signs of economic weakness, coupled with regional banking fears, have raised the odds that the Federal Reserve will make a modest 25 basis point hike to its key interest rate at the end of its two-day policy meeting on March 22.

“Friday the market was focused on inflation, but clearly not anymore,” said Angelo Kourkafas, investment strategist at Edward Jones in St. Louis. “The pace of this inflation is important, but now the Fed must also take into account the increasing risks to financial stability.

“So policymakers will be alert to those risks and likely to pause sooner than they otherwise would have,” Kourkafas added.

Financial markets have now priced in a 75.3% probability that the central bank will raise the Fed Funds target rate by another 25 basis points at the end of its two-day monetary meeting later this month, with a growing minority – 24.7% – as the potential of no rate hike at all, according to CME’s FedWatch tool.

Shockwaves following the closure of Silicon Valley Bank and Signature Bank, which led President Joe Biden to vow to contain the crisis and ensure the safety of the US banking system, continued to reverberate across the industry.

The S&P 500 banking index (.SPXBK) last rose 1.5% after Monday’s plunge, its biggest single-day drop since June 2020.

The Dow Jones Industrial Average (.DJI) rose 72.41 points, or 0.23%, to 31,891.55, the S&P 500 (.SPX) gained 31.67 points, or 0.82%, to 3,887.43 and the Nasdaq Composite (.IXIC) added 139.00 points, or 1.24% to 11,327.84.

Of the 11 major sectors in the S&P 500, everything but real estate (.SPLRCR) was up, with communications services (.SPLRCL) making the largest percentage gains.

Amid multiple volatility spikes, shares of First Republic Bank (FRC.N) and Western Alliance Bancorp (WAL.N) rose 29.9% and 16.6%, respectively.

Meta Platforms Inc (META.O) announced the shedding of 10,000 jobs in its second round of layoffs. The stock rose 6.2%.

Rival app rivals Uber Technologies Inc (UBER.N) and Lyft Inc (LYFT.O) rose 5.7% and 1.8%, respectively, after a California court revived a ballot allowing the companies to hire drivers as independent contractors. treat instead of employees.

United Airlines Holdings Inc (UAL.O) fell 5.5% after the commercial airline unexpectedly forecast a loss for the current quarter.

AMC Entertainment Holdings (AMC.N) plummeted 17.9% between multiple trading stops after shareholders voted to convert preferred stock to common stock.

Emerging issues outnumbered declining issues on the NYSE by a ratio of 2.62 to 1; on Nasdaq, a ratio of 2.01 to 1 was in favor of progress.

The S&P 500 posted 2 new highs in 52 weeks and 12 new lows; the Nasdaq Composite recorded 20 new highs and 134 new lows.

Reporting by Stephen Culp in New York Additional reporting by Sinead Carew in New York and Shubham Batra and Amruta Khandekar in Bengaluru Edited by Anil D’Silva and Matthew Lewis

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