Wall Street ends green as inflation cools, banks ebb

NEW YORK, March 14 (Reuters) – U.S. stocks bounced back on Tuesday as largely on-target inflation data and easing jitters over contagion in the banking sector cooled expectations for the size of a rate hike at the Federal Reserve’s policy meeting next week.

All three major U.S. stock indexes closed sharply higher, with the S&P 500 and Dow up more than 1% and tech-heavy Nasdaq up more than 2%, after several sessions of risk jitters fueled by fallout from the implosion of Silicon Valley Bank and Signature Bank.

Financial stocks clawed back some losses, with the S&P 500 Banks Index (.SPXBK) rebounding from its steepest one-day selloff since June 2020.

The KBW Regional Banking index (.KRX) rose 2.1%.

Fears of a banking contagion eased on Tuesday as US President Joe Biden and other global policymakers promised that the crisis would be contained.

“The market has an opportunity to digest some of the news of the last couple of days,” said Matthew Keator, managing partner of the Keator Group, an asset management firm in Lenox, Massachusetts. “(Investors) see a coordinated effort with various government agencies, and in retrospect they feel that things have narrowed down a bit.”

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

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

But signs of economic softness, combined with the regional banking scare, have increased the chances that the Federal Reserve will implement a modest 25 basis point hike in its key interest rate at the conclusion of its two-day policy meeting on March 22.

Financial markets have now priced in a 74.5% probability that the central bank will raise the target Fed Funds rate by another 25 basis points at the conclusion of its two-day monetary meeting later this month, with a growing minority – 25.5% – as the potential for no rate hike in the at all, according to CME’s FedWatch tool.

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

“If the Fed is not careful, they could create some unintended shocks in the system,” he said.

Shock waves from the closures of Silicon Valley Bank and Signature Bank, which prompted Biden to pledge to contain the crisis and ensure the safety of the US banking system, continued to reverberate throughout the sector.

The S&P 500 banking index (.SPXBK) reclaimed territory, rising 2.6% after Monday’s drop, the biggest one-day drop since June 2020.

The Dow Jones Industrial Average (.DJI) rose 336.26 points, or 1.06%, to 32,155.4, the S&P 500 (.SPX) gained 64.8 points, or 1.68%, to 3,920.56 and Nasdaq Composite (2,393) 1 point. 2.14% to 11,428.15.

All 11 major sectors in the S&P 500 ended the day higher, with Communications Services (.SPLRCL) posting the biggest percentage gain.

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

Meta Platforms Inc ( META.O ) announced 10,000 job cuts in its second round of layoffs. The share rose 7.3 percent.

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 a ballot measure that allows the companies to treat drivers as independent contractors rather than employees.

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

AMC Entertainment Holdings ( AMC.N ) tumbled 15.0% between several trading halts after shareholders voted to convert preferred stock into common stock.

Advancing issues outnumbered decliners on the NYSE by a ratio of 2.60 to 1; on the Nasdaq, a ratio of 1.83 to 1 favored advances.

S&P 500 posted 3 new 52-week highs and 15 new lows; The Nasdaq Composite recorded 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 confusion in section 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

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