March 14 (Reuters) – Battered US bank stocks rebounded on Tuesday, driving major Wall Street indices higher, while a slight slowdown in consumer price growth prompted investors to price in a smaller rate hike by the Federal Reserve in March.
Data showed the US Consumer Price Index (CPI) rose 0.4% in February from 0.5% in January as Americans faced continued higher costs for rents and food. On an annual basis, the CPI rose 6% in February, compared to 6.4% the previous month.
Excluding the volatile food and energy components, the CPI rose 0.5% after rising 0.4% in January. In the 12 months through February, so-called core CPI rose 5.5%, following a 5.6% increase in January.
Yields on two-year government bonds, which best reflect interest rate expectations, rose to 4.3% following the data, with traders holding onto bets on a 25 basis point rate hike in March.
The probability of a pause in rate hikes fell to 17% in March.
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Stocks have been hammered in recent days after the collapse of SVB Financial Group (SIVB.O) and peer Signature Bank (SBNY.O) sent shockwaves through the banking sector.
Investors now hope that the Fed will ease its aggressive monetary policy to avoid a liquidity crisis.
“While the CPI continues its eighth consecutive month of decline, it is still remarkably high by Fed standards,” said Charles Hepworth, investment director of GAM Investments.
“Therefore, continued militancy must still be justified, or at least that’s what the Fed probably wants to say.”
[1/4] Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 14, 2023. REUTERS/Brendan McDermid
Regional banking stocks rallied after posting double-digit losses in recent days, with the KBW Regional Banking Index (.KRX) rising 7.7%.
First Republic Bank (FRC.N) rose 49.5%, while shares of peer Western Alliance Bancorp (WAL.N) rose 40.7%. Trading in shares of both banks was halted several times due to volatility.
The S&P 500 banking index (.SPXBK) rose 2.9% after the 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 announced it would cut 10,000 jobs in a second round of mass layoffs.
Other large price-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 Composite (.IXIC) was up 263.75 points, or 2.36%, to 11,452.59.
Shares of Uber Technologies Inc (UBER.N) and Lyft Inc (LYFT.O) rose 5.6% and 3%, respectively, after a California court revived a ballot order allowing app-based services to employ drivers as independent contractors instead of employees can handle.
United Airlines Holdings Inc (UAL.O) fell 4.6% on a gloomy Q1 forecast.
Emerging issues outnumbered fallers by a ratio of 6.05 to 1 on the NYSE and by a ratio of 3.52 to 1 on the Nasdaq.
The S&P index registered two new highs in 52 weeks and five new lows, while the Nasdaq recorded 18 new highs and 79 new lows.
Reporting by Shubham Batra and Amruta Khandekar in Bengaluru; Additional reporting by Shashwat Chauhan, editing by Saumyadeb Chakrabarty, Uttaresh Venkateshwaran and Anil D’Silva
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