Wall Street rises on the back of the recovery of banks, small bets on raising interest rates

(Reuters) – Battered U.S. bank stocks rebounded on Tuesday, sending major indexes higher on Wall Street, while a slight slowdown in consumer price growth prompted investors to hike interest rates by the Federal Reserve in March.

The data showed the Consumer Price Index (CPI) rose 0.4% in February from 0.5% in January as Americans faced a continued rise in rent and food costs. On an annual basis, the consumer price index increased by 6% in February compared to 6.4% in the previous month.

Excluding the volatile food and energy components, the CPI rose 0.5% after rising 0.4% in January. In the twelve months through February, the so-called core CPI rose 5.5% after rising 5.6% in January.

The yield on two-year Treasury notes, which best reflects interest rate expectations, rose to 4.3% after the data, with traders holding bets on a 25 basis point rate hike in March.

Prospects for a pause in rate hikes have fallen to 17% for the month of March.

Stocks have taken a hit in the past few days after the collapse of SVB Financial Group (SIVB.O) and Signature Bank (SBNY.O) sent shock waves through the banking sector.

Investors are now hoping that the Fed will soften its aggressive stance on monetary policy to prevent a liquidity crisis.

“While the CPI continues its downward trend for the eighth consecutive month now, it is still remarkably high by Fed standards,” said Charles Hepworth, chief investment officer at GAM Investments.

“So, the continuation of the tightening should still be ensured, or at least that’s what the Fed probably wants to say.”

Regional banking stocks rebounded after suffering double-digit losses over the past few days, with the KBW Regional Banking Index (.KRX) up 7.7%.

First Republic Bank (FRC.N) jumped 49.5%, while peer Western Alliance Bancorp (WAL.N) rose 40.7%. Trading in the shares of both banks was halted several times due to fluctuations.

The S&P 500 Banking Index (.SPXBK) rose 2.9% after posting its biggest one-day percentage drop since June 2020 in the previous session.

Meta Platforms Inc (META.O) rose 6.1% after Facebook’s parent company said it would cut 10,000 jobs in a second round of mass layoffs.

Other major rate-sensitive growth stocks such as Apple (AAPL.O), Alphabet Inc (GOOGL.O) and Tesla (TSLA.O) rose between 1% and 4%.

At 11:46 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 422.41 points, or 1.33%, at 32,241.55, the S&P 500 (.SPX) was up 75.20 points, or 1.95%, at 3,930.96, and the Nasdaq. The Composite Index (.IXIC) rose to 11,452.59 points, or 2.36%.

Shares of Uber Technologies Inc (UBER.N) and Lyft Inc (LYFT.O) rose 5.6% and 3%, respectively, after a California state court revived a ballot measure that allows app-based services to treat drivers as independent contractors rather than employees.

United Airlines Holdings Inc (UAL.O) fell 4.6% amid a pessimistic outlook for the first quarter.

Advance issues outnumber losers 6.05 to 1 on the NYSE and 3.52 to 1 on the Nasdaq.

The S&P posted a 52-week high and five new lows, while the Nasdaq posted 18 new highs and 79 new lows.

Additional reporting by Shubham Batra and Amruta Khandekar in Bengaluru; Additional reporting by Shashuat Chauhan, Editing by Soumyadheb Chakrabarti, Uttarish Venkateshwaran, Anil D’Silva

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