Bank stocks climbed and Treasury yields rose Tuesday, as some traders anticipated that financial-sector distress could remain contained and leave the Federal Reserve free to focus on tackling inflation.
Trading steadied compared with Monday’s stormy session, which brought a deep rout for bank stocks and a rally for government bonds. Over the past week, the collapse of Silicon Valley Bank and the shutdowns of Signature Bank and Silvergate Capital heaped new fears of financial strain on top of investors’ yearlong preoccupation with inflation.
The S&P 500 rose 63.53 points, or 1.6%, to close at 3919.29. The Dow Jones Industrial Average added 336.26 points, or 1.1%, ending at 32155.40, and the tech-centric Nasdaq Composite climbed 239.31 points, or 2.1%, to 11428.15.
The KBW Bank index rose 2.60 points, or 3.2%, to 84.07, bouncing higher after a brutal few days for the sector.
As the anxiety rippling through the banking sector began to ease, investors reversed some of their more dire bets from a day earlier. Some bank stocks recovered sharply. First Republic Bank, which came under pressure over the weekend, climbed $8.42, or 27%, to $39.63. Charles Schwab gained $4.77, or 9.2%, to $56.68 and
rose 79 cents, or 6.9%, to $12.17. Zions Bancorp, which has also faced investor scrutiny, rose $1.34, or 4.5%, to $31.31.
On Monday, the bond market had been awash in fear that bank distress would force the Fed to soften its plans for continued interest-rate increases, even though inflation is still above target. A flight to the safety of government debt sent the two-year Treasury note’s yield to a historic decline. Yields fall when bond prices rise. And the KBW index tumbled 12% as traders worried turmoil would spread among financial institutions.
“The action in regional banks was certainly concerning, but at this point it seems limited to a handful of unique names,” said Michael Sheldon, chief investment officer at RDM Financial.
Jim Caron,
a Morgan Stanley Investment Management portfolio manager, said his team has been adding to holdings of bank stocks at attractive discounts.
The relative calm boosted bond traders’ confidence that in its meeting next week, the Fed may be able to stick to its guns in its battle against inflation. Consumer-price-index data out Tuesday showed that headline prices rose by 6% annually in February, cooling for an eighth consecutive month.
Cindy Beaulieu, chair of asset manager Conning’s investment-policy committee, said that barring additional bank distress, her team expects a quarter-percentage-point rate increase following the Fed’s meeting next week.
“The Fed is doing everything they can to quickly build confidence in this market,” Ms. Beaulieu said. “They’re in a very precarious spot now, because if they don’t move, there will be this question: How bad is this bank situation that they feel like they can’t address inflation?”
Investors in interest-rate futures markets now see roughly one-in-four odds that the Fed holds rates steady at its meeting this month, down from approximately one-in-three odds on Monday, according to CME Group data. The shift lifted the yield on the two-year Treasury note, which closely follows interest-rate expectations. It rose to 4.221% Tuesday, from 4.030% at Monday’s settlement.
The yield on the benchmark 10-year Treasury note climbed to 3.633%, from 3.515% a day earlier.
Still, some strategists cautioned it was too early to sound the all-clear.
Investors see just one-in-ten odds that the Fed holds interest rates steady at its meeting this month.
Photo:
Michael Nagle/Zuma Press
“Macro volatility is here to stay,” said
Viraj Patel,
global macro strategist at Vanda Research. “My view here is that there are more skeletons to come out of the closet as a ramification of rates going up as quickly as they have.”
United Airlines stock fell $2.62, or 5.4%, to $46.21 after the Chicago-based carrier warned that it expects a first-quarter loss. Shares of
parent Meta Platforms climbed about $13.12, or 7%, to $194.02 after the company said it would cut an additional 10,000 jobs. Meta’s market value topped $500 billion for the first time since June, after peaking at $1.078 trillion in September 2021.
Overseas, bank stocks’ performance diverged. In Europe, bank shares mostly climbed. The pan-continental Stoxx Europe 600 added 1.5%, snapping a three-session losing streak.
In Asia, trading was more volatile. Japan’s Nikkei 225 fell 2.2% in its worst one-day decline of the year as shares of the country’s largest banks tumbled. In mainland China, the Shanghai Composite fell 0.7%. Hong Kong’s Hang Seng lost 2.3%.
Brent crude, the global benchmark for oil prices, fell 4.1% to $77.45 a barrel, its lowest close of 2023. The Organization of the Petroleum Exporting Countries on Tuesday trimmed its oil-demand forecast for the rest of the year.
—Dave Sebastian contributed to this article.
Write to Matt Grossman at matt.grossman@wsj.com, Caitlin McCabe at caitlin.mccabe@wsj.com and Rebecca Feng at rebecca.feng@wsj.com
Corrections & Amplifications
Shares of
parent Meta Platforms climbed about $13.12. An earlier version of this article incorrectly said shares of Meta Platforms climbed about $13.21. (Corrected on March 14)
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