Wall Street rises as inflation eases, banking turmoil eases

NEW YORK, March 14 (Reuters) – Wall Street bounced back on Tuesday as broadly on-target inflation data and easing fears of banking contagion cooled expectations for the size of a rate hike at the Federal Reserve’s policy meeting next week.

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

Financial stocks recovered some of their resulting 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 3.1%.

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

The Labor Department’s CPI report showed that consumer prices fell in February, broadly in line with market expectations, with headline and core measures recording 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 odds that the Federal Reserve will implement a modest 25 basis point hike to its key interest rate at the end of its two-day policy meeting on March 22.

“On Friday, the market was laser-focused on inflation, but clearly not anymore,” said Angelo Kourkafas, investment strategist at Edward Jones in St. Louis. “The pace of this inflation matters, but now the Fed must also consider the increasing risks to financial stability.

“So policymakers will be aware of these risks and probably 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 target Fed funds rate by another 25 basis points at the end of its two-day monetary meeting later this month, with a growing minority – 24.7% – after the potential for no rate hike at all, according to CME’s FedWatch tool.

Shock waves from the closure of Silicon Valley Bank and Signature Bank, which prompted President Joe Biden to promise 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) was last up 1.5% following Monday’s plunge, its biggest one-day drop since June 2020.

The Dow Jones Industrial Average (.DJI) added 72.41 points, or 0.23%, to 31,891.55, the S&P 500 (.SPX) added 31.67 points, or 0.82%, to 3,887.43 and the Nasdaq Composite added 1.39IC.0 points (1.39IC)0. 1.24% to 11,327.84.

Among the 11 major sectors in the S&P 500, all but real estate (.SPLRCR) were higher, with communications services (.SPLRCL) the biggest percentage gainer.

Amid several volatility stops, 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 10,000 job cuts in its second round of layoffs. Its stock rose 6.2 percent.

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 measure allowing the companies to treat drivers as independent contractors rather than employees.

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

AMC Entertainment Holdings ( AMC.N ) plunged 17.9% between several trading halts after its shareholders voted to convert preferred stock into common stock.

Advancing issues outnumbered decliners on the NYSE by a ratio of 2.62 to 1; on the Nasdaq, a ratio of 2.01 to 1 favored advances.

S&P 500 posted 2 new 52-week highs 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 Editing by Anil D’Silva and Matthew Lewis

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