Wall Street ends green as inflation cools and banks’ nervousness eases

NEW YORK, March 14 (Reuters) – US stocks rallied on Tuesday as inflation data were broadly in line with targets and nervousness over contagion in the banking sector eased, expectations for the size of the rate hike at the next Federal Reserve meeting week chilled.

All three major US stock indices ended significantly higher, with the S&P 500 and Dow up more than 1% and the tech-heavy Nasdaq up more than 2% after several sessions of risk-off turmoil sparked by the aftermath of the US dollar implosion were Silicon Valley Bank and Signature Bank.

Financials recouped some losses, with the S&P 500 Banks Index (.SPXBK) rebounding from its biggest one-day sell-off since June 2020.

The KBW Regional Banking Index (.KRX) was up 2.1%.

Fears of banking contagion were allayed on Tuesday as US President Joe Biden and other global decision-makers vowed to contain the crisis.

“The market is having a chance to digest some of the news over the past few days,” said Matthew Keator, managing partner of Keator Group, an asset management firm in Lenox, Massachusetts. “(Investors) are seeing a coordinated effort with various government agencies, and with hindsight they feel things have calmed down a bit.”

The Labor Department’s CPI report showed that consumer prices cooled in February, broadly in line with market expectations, with headlines and core metrics posting welcome annual declines.

Despite this, inflation still has a significant way to go before approaching the central bank’s average annual target of 2%.

But signs of economic weakness, combined with regional banking fears, have increased the likelihood that the Federal Reserve will close its two-day monetary policy meeting on March 22.

Financial markets have now priced in a 74.5% chance that the central bank will hike the Fed’s interest rate by another 25 basis points at the end of its two-day currency meeting later this month, with a growing minority – 25.5% – seeing it, according to FedWatch tool from CME the potential of no rate hike at all.

“Part of today’s stabilization is that people are feeling that the Fed may back down from some of the hawkish expectations that followed Chairman Powell’s comments last week,” Keator added.

“If the Fed isn’t careful, they could inflict some unintended shocks on the system,” he said.

Shockwaves following the shutdowns of Silicon Valley Bank and Signature Bank, which prompted Biden to vowed he would contain the crisis and ensure the safety of the US banking system, continued to reverberate across the sector.

The S&P 500 banking index (.SPXBK) reclaimed territory, up 2.6% after Monday’s plunge, its biggest daily decline since June 2020.

The Dow Jones Industrial Average (.DJI) was up 336.26 points, or 1.06%, to 32,155.4, the S&P 500 (.SPX) was up 64.8 points, or 1.68%, to 3,920.56 and the Nasdaq Composite (.IXIC) was up 239.31 points, up 2.14% at 11,428.15.

All 11 major sectors in the S&P 500 ended the trading day higher, with communications services (.SPLRCL) posting the largest percentage gain.

Shares in First Republic Bank (FRC.N) and Western Alliance Bancorp (WAL.N) rose 27.0% and 14.4%, respectively, marking a reversal of the previous session’s defeat.

Meta Platforms Inc (META.O) announced 10,000 job cuts in its second round of layoffs. Its stock gained 7.3%.

Ride-hailing app rivals Uber Technologies Inc (UBER.N) and Lyft Inc (LYFT.O) rose 5.0% and 0.6%, respectively, after a California state court revived an electoral measure allowing the companies allowed drivers to be treated as independent contractors instead of treating employees.

United Airlines Holdings Inc (UAL.O) fell 5.4% after the commercial airline unexpectedly forecast a loss in the current quarter.

AMC Entertainment Holdings (AMC.N) slipped 15.0% between multiple halts in trading after its shareholders voted to swap preferred stock for common stock.

Rising issues predominated on the NYSE at a 2.60 to 1 ratio; on the Nasdaq, a 1.83 to 1 ratio favored movers.

The S&P 500 posted 3 new 52-week highs and 15 new lows; the Nasdaq Composite posted 23 new highs and 195 new lows.

Volume on US exchanges was 13.84 billion shares, compared to the average of 11.64 billion over the past 20 trading days.

(This story has been refiled to fix the mutilation in paragraph 20.)

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

Our standards: The Thomson Reuters Trust Principles.