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Wall Street gains as inflation cools, bank jitters subside

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A closely-watched measure of U.S. inflation showed prices in February continued to rise but at a slower pace, giving investors hope that the Federal Reserve may opt for a lower interest-rate hike than previously expected. Zachary Goelman produced this report.

Wall Street rebounded on Tuesday as largely on-target inflation data and waning fears over contagion in the banking sector cooled expectations regarding the size of the rate hike at the Federal Reserve’s policy meeting next week.

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

Financial stocks clawed back some of their resulting losses, with the S&P 500 Banks index (.SPXBK) bouncing back from its steepest one-day sell-off since June 2020.

The KBW Regional Banking index (.KRX) was up 3.1%.

Bank contagion fears were allayed on Tuesday as reassurances by U.S. President Joe Biden and other global policymakers vowed the crisis would be contained.

The Labor Department’s CPI report showed consumer prices cooled in February, largely in line with market expectations, with headline and core measures notching welcome annual declines.

Even so, inflation has a considerable way to go before approaching the central bank’s average annual 2% target.

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 conclusion of its two-day policy meeting on March 22.

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

“So policy makers will be attentive to those risks and likely pause sooner than they otherwise would’ve,” Kourkafas added.

Financial markets have now priced in a 75.3% likelihood that the central bank will raise the Fed funds target rate by an additional 25 basis points at the conclusion of its two-day monetary meeting later this month, with a growing minority – 24.7% – seeing the potential of no rate hike at all, according to CME’s FedWatch tool.

Shock waves following the closure of Silicon Valley Bank and Signature bank, which prompted President Joe Biden to vow he would contain the crisis and ensure the safety of the U.S. banking system, continued to reverberate throughout the sector.

The S&P 500 banking index (.SPXBK) was last up 1.5% in the wake of Monday’s plunge, its biggest one-day drop since June 2020.

The Dow Jones Industrial Average (.DJI) rose 72.41 points, or 0.23%, to 31,891.55, the S&P 500 (.SPX) gained 31.67 points, or 0.82%, to 3,887.43 and the Nasdaq Composite (.IXIC) added 139.00 points, or 1.24%, to 11,327.84.

Among the 11 major sectors in the S&P 500, all but real estate (.SPLRCR) were higher, with communication services (.SPLRCL) enjoying the largest percentage advance.

Amid multiple volatility halts, shares of First Republic Bank (FRC.N) and Western Alliance Bancorp (WAL.N) surged by 29.9% and 16.6%, respectively.

Meta Platforms Inc (META.O) announced 10,000 job cuts in its second round of layoffs. Its stock advanced 6.2%.

Ride-hailing app rivals Uber Technologies Inc (UBER.N) and Lyft Inc (LYFT.O) rose 5.7% and 1.8%, respectively, after a California state 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 current quarter loss.

AMC Entertainment Holdings (AMC.N) plummeted 17.9% between multiple trading halts after its shareholders voted in favor of converting preferred stock into common shares.

Advancing issues outnumbered declining ones on the NYSE by a 2.62-to-1 ratio; on Nasdaq, a 2.01-to-1 ratio favored advancers.

The S&P 500 posted 2 new 52-week highs and 12 new lows; the Nasdaq Composite recorded 20 new highs and 134 new lows.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 14, 2023. REUTERS/Brendan McDermid

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