Dow surges as fears of big rate hikes ease

Stocks rebounded on Tuesday as largely on-target inflation data and easing jitters 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 stock indexes closed in positive territory, after several sessions of risk-off turmoil driven by the implosion of Silicon Valley Bank and Signature bank, and worries over contagion.

The Dow Jones Industrial Average soared 336.26 points, or 1.1%, to 32,155.40, the Nasdaq climbed 2.1% and the S&P 500 was up 1.7%.

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

“The market is having an opportunity to digest some of the news over the last couple of days,” said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Mass. “(Investors) are seeing a coordinated effort with various government agencies, and with hindsight, they’re feeling as if things have contained themselves a bit.”

Traders work on the floor of the New York Stock Exchange on Tuesday. — Stocks have been hammered in the past few days following the collapse of SVB Financial Group and peer Signature Bank and on fears of risks to other banks from sharp interest rate hikes by the Fed. REUTERS

Data showed that the Consumer Price Index rose 0.4% in February versus 0.5% a month ago. On a yearly basis, it rose 6.0% last month, compared with 6.4% in the previous month.

Excluding the volatile food and energy components, the CPI increased 0.5% after rising 0.4% in January.

In the 12 months through February, the so-called core CPI gained 5.5% after advancing 5.6% in January.

Traders held on to bets of a 25-basis-point rate hike at the Fed’s next meeting in March, with odds of a pause in hikes slipping a bit to 17%.

Stocks have been hammered in the past few days following the collapse of SVB Financial Group and peer Signature Bank and on fears of risks to other banks from sharp interest rate hikes by the Fed.

Investors are hoping that the threat of a financial crisis will force the central bank to ease up on monetary tightening.

“In light of the weekend’s events, I don’t think it could have been a more perfect number. It’s showing that inflation is trending the way that the Fed has kind of expected and wanted,” said Kim Forrest, chief investment officer, Bokeh Capital Partners, Pittsburgh.

“The Fed’s not going to be super aggressive and hurt banks more by raising interest rates.”

First Republic Bank jumped 27%, while peer Western Alliance Bancorp rose 14%.

Meta Platforms rose 7.2% after the Facebook-parent said it would cut 10,000 jobs in a second round of mass layoffs.

Other major Big Tech and growth stocks such as Apple, Alphabet and Tesla rose between 1% and 5%.

Shares of ride-hailing company Uber Technologies rose 5% after a California state court revived a ballot measure allowing app-based services to treat drivers as independent contractors rather than employees.

United Airlines Holdings fell 5.4% after the carrier on Monday forecast an unexpected loss in the current quarter.