Banking stocks rebounded and pushed Wall Street higher, resulting in strong gains

Stocks soared on Wall Street on Tuesday as some banks rebounded after a sluggish Monday. uncertainty.

The gestures of small banks there AVERAGE they recovered some of their earlier declines, triggered by fears that customers could withdraw all their money. Treasury yields soared to record lows.

He S&P500 It rose 1.7% in afternoon trade after a report showed inflation remained high but was heading lower. The industry average Dow Jones increased by 1.1%, while Nasdaq composite rose 2.1 percent.

A week ago, Wall Street expected Tuesday’s inflation report to be the most important data of the week, if not the month.. The fear at the time was that inflation would remain stubbornly high, which could force the Federal Reserve to accelerate the pace of interest rate hikes again.

These increases may reduce inflation by slowing the economy, but increase the risk of a recession later. They also hurt the prices of stocks, bonds and all kinds of investments.

Tuesday’s report showed consumer inflation was 6% in February, compared to the previous year. The figure is in line with economists’ expectations and marks a slowdown from January’s 6.4% inflation rate, but remains well above the Federal Reserve’s target.

In normal times, this could require an intensification of rate hikes. The problem for the Federal Reserve is that it also faces a banking system that may already be cracking after all of its rate hikes last year, which came at the fastest pace in decades. The second and third largest bank failures in US history have occurred since Friday.

“The Federal Reserve is between a rock and a hard place.says Brian Jacobsen, investment strategist at Allspring Global Investments.

He also said the Federal Reserve has tools other than rate hikes. Among them: The Fed could adjust the pace at which it cuts its huge treasury of bond investments, a move that effectively tightens the screws on the financial system.

A looser Federal Reserve could breathe more life into the banking system and the economy, but it could also give more oxygen to inflation.

Traders were quick to bet on Monday that the Federal Reserve could decide to hold rates steady at its next meeting, rather than accelerating to 0.50 percentage points as they thought a week ago. After the inflation data, bets fall that it will remain with a 0.25 point rise this month, according to data from CME Group.

Financial sector stocks rose on Tuesday, recovering some of their earlier steep declines. First Republic Bank rose 26.3% after plunging 67.5% in the previous three days. KeyCorp gained 9.8% and Charles Schwab gained 11.6%. Zions Bancorp. It rose 0.2% after giving up most of a strong morning gain.

Among other big moves on Wall Street, Facebook’s parent company rose 5.9% after saying it expects spending this year to be lower than previous forecasts. Meta Platforms cuts workers and eliminates vacancies to reduce expenses.

The US government announced a plan on Sunday evening to bolster confidence in the banking system following the failures of Silicon Valley Bank on Friday and Signature Bank on Sunday. Banks are struggling as higher interest rates reduce the value of their investments, while fearing that suspicious customers will try to withdraw their money en masse to cause a run.

Some of the craziest moves were in the bond market, where the two-year Treasury yield plunged about half a percentage point on Monday. This is a historic move for the fixed income market. Yields plunged as investors turned to investments considered safe and lowered their expectations of future Federal Reserve rate hikes.

The two-year yield rose to 4.27% from 4.02% on Monday, another huge move.

The 10-year yield jumped from 3.55% to 3.60%. This interest rate is used to fix interest rates on mortgages and other large loans.

European markets also recovered after a large decline in Asia.

(With AP information)

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