US stocks experienced gains on Tuesday, as investors grew more confident that the risk of contagion following the closures of Silicon Valley Bank and Signature Bank had been contained. The Dow Jones Industrial Average ended up 336.26 points, or 1.06%, at 32,155.40, snapping a five-day losing streak. The S&P 500 added 1.68% to close at 3,920.56, and the Nasdaq Composite climbed 2.14% to end at 11,428.15.
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Bank Stocks Regain Some Ground
Investors’ enthusiasm for buying bank stocks waned somewhat in the afternoon, but many still saw gains, marking a turn from two sessions of deep selloffs as confidence grew that these banks would not suffer the same fate as Silicon Valley and Signature. Regulators announced on Sunday that they had created a plan to backstop all depositors in the two banks.
The SPDR S&P Regional Banking ETF (KRE) closed up 2%, recovering some ground following a 12% decline the day prior. Shares of First Republic Bank jumped nearly 27% after closing down almost 62% on Monday, while KeyCorp shares added nearly 7% in a relief bounce following a 27% slide.
Traders Assess Next Steps for the Banking Sector
With the recent turmoil in the banking sector as seen in the latest stock market news, traders are now looking ahead to what comes next. The backstop announcement “changed the sentiment, or shifted the tide, to some extent,” according to Charlie Ripley, vice president of portfolio management at Allianz Investment Management. He explained that it begins with an immediate knee-jerk reaction, followed by a period of digging into the details to understand the real risks and exposures.
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The rally extended beyond financials, with all 11 S&P 500 sectors experiencing gains during Tuesday’s session. However, stocks did give up some gains in the afternoon as investors responded to news of a Russian fighter jet downing a U.S. drone over the Black Sea.
Focus on Inflation Data
Traders also turned their attention to the latest U.S. inflation data. The consumer price index (CPI) rose 0.4% in February from January, matching the consensus estimate of economists polled by Dow Jones. The annualized increase of 6% was also in line with economists’ expectations.
The so-called “core” CPI, which removes volatile food and energy prices, grew from the prior month slightly more than economists expected at 0.5%. Meanwhile, the year-over-year increase of 5.5% came in line with what they had anticipated.
“It’s a sigh-of-relief rally, we’ll call it, given the lack of any major surprises in CPI and then just the lack of any surprises overnight in the banking space,”Adam Turnquist, chief technical strategist at LPL Financial. “The market’s welcoming that
Investors should consider buying shares of the beaten-down regional bank Western Alliance, according to Wells Fargo. Analyst Timur Braziler wrote in a note on Monday that the risk/reward for Western Alliance appeared attractive, with shares trading at 60% of tangible book value. He also expressed renewed optimism following a conversation with the bank’s management.
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Western Alliance’s management update as of March 9 showed total deposits increasing by an impressive $7.8 billion, or 15% quarter-over-quarter. The update on Monday indicated only a “moderate” outflow since that time. Western Alliance shares declined 47% on Monday as part