NEW YORK (AP) – Stocks on Wall Street rose Tuesday as some of the most exciting moves from…
NEW YORK (AP) — Wall Street stocks rose on Tuesday as some of the most exciting moves since Monday’s manic reversal.
The S&P 500 rose 1.5% in early trade after the report showed inflation still high but declining. Shares of smaller and medium-sized banks recovered some of the earlier losses caused worries so that customers can withdraw all their cash. Treasury yields rose sharply to pare their historic decline.
The Dow Jones industrial average rose 308 points, or 1%, to 32,127 as of 9:45 a.m. ET, while the Nasdaq composite was 1.9% higher.
A week ago, Wall Street expected Tuesday’s inflation report to be the most important data of the week, if not the month. The concern at the time was that inflation remained stubbornly high, which could force the Federal Reserve to pick up the pace of interest rate hikes again.
Such increases may reduce inflation by slowing the economy, but they increase the risk of recession down the line. They also affect the prices of stocks, bonds and all kinds of other investments.
A report on Tuesday showed that consumer inflation was 6% in February from a year earlier. That was in line with economists’ expectations and a slowdown from January’s inflation rate of 6.4%, but still uncomfortably hot.
In normal times, this could actually cause the size of rate hikes to increase. The problem for the Fed is that it also faces a banking system and economy that may already be collapsing from all the rate hikes over the past year, which have been happening at the fastest pace in decades. This includes the second and third largest bankruptcy of banks in US history since Friday.
“The Fed is stuck between a rock and a hard place,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
“Inflation has met expectations, but remains uncomfortably hot. Financial stresses are strong. Prudence would tell them to pause, but coupled with a stark warning that if inflationary trends do not improve, they may need to raise further.”
He said the Fed also has other tools to use besides raising rates. Among them: The Fed could adjust the speed at which it shrinks its huge stockpile of bond investments, an action that effectively tightens the screws on the financial system.
An easier Fed could give the banking system and the economy more breathing room, but it could also give inflation more oxygen.
Stocks across the financial industry rose on Tuesday, recovering some sharp earlier declines. Financial Republic Bank rose 43.4% after falling 67.5% in the previous three days. Zions Bancorp. rose 14.4%, KeyCorp gained 16% and Charles Schwab jumped 9.6%
US Govt announced the plan late Sunday to bolster confidence in the banking system following the bankruptcy of Silicon Valley Bank on Friday and Signature Bank on Sunday. Banks are struggling as higher interest rates erode the value of their investments, while grappling with concerns that reluctant customers could try to withdraw their money en masse to trigger a raid.
Some of the wildest action came in the bond market, where yields on two-year Treasuries fell by about half a percent on Monday. This is a move of historic size for the bond market. Yields fell sharply as investors flocked to what were considered safe-haven investments and raised their expectations for future Fed rate hikes.
The two-year yield rose again to 4.36% from 4.02% late Monday, another big move.
The yield on the 10-year note jumped to 3.66% from 3.55%. This helps set mortgage rates and other important loans.
European markets also recovered after a broad retreat in Asia.
Bank shares stabilized after comments from the head of the group of 20 eurozone finance ministers, Paschal Donogh, said late Monday that Europe had “no direct impact” on the Silicon Valley bank.
AP Business writers Yuri Kageyama, David McHugh and Matt Ott contributed.
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