Stocks rose on Tuesday as traders became optimistic on the financial sector's outlook following Treasury Secretary Janet Yellen's reassurances to safeguard against further banking crises. Wall Street marked its second day of gains ahead of the Federal Reserve's announcement on interest rates Wednesday.
The Dow Jones Industrial Average gained 316.02 points, or 0.98%, to close at 32,560.60. Meanwhile, the S&P 500 jumped 1.30% to end the day at 4,002.87 — its first close above the 4,000 threshold since March 6. The Nasdaq Composite added 1.58% to close at 11,860.11.
Regional banks surged Tuesday, led by First Republic. The beaten-down bank jumped almost 30%, a day after losing 47%. The SPDR Regional Banking ETF (KRE) gained nearly 6%. Regionals got a boost after Treasury Secretary Janet Yellen said Tuesday morning that the government is ready to provide further guarantees of deposits if the banking crisis worsens.
Wall Street is looking toward the Federal Reserve's announcement on its monetary policy tightening path on Wednesday afternoon. Investors are now expecting a slower pace of tightening from the Federal Reserve in light of the banking crisis. Traders currently are pricing in a 86% chance of a quarter-point rate hike when the Fed wraps its two-day policy meeting on Wednesday, according to CME Group's FedWatch tool. The probability of a pause is at 13.6%.
"If [the Fed] were to pause their rate hikes, that would be the same as acknowledging that they know something that maybe the markets don't know. I think that would be devastating idea for them," said Johan Grahn, head of ETF strategy at Allianz Investment Management. "It was never really an argument for them to go to back down from the 25 [basis points]."
He added that the market volatility after the Silicon Valley Bank failure and Credit Suisse meltdown was a "very natural knee-jerk reaction for investors to go towards safety immediately."
"It seems like the evaluation process has settled down a little bit, so we can move on and say that these were relatively isolated incidents. Now, of course, this is just the first crack," Grahn said. "We're in this period of heightened volatility, and I think it's easy to forget just how much volatility we have both on the equity side and the fixed income side."
The combined weight of the biggest two stocks in the S&P 500 is at its highest level since at least 1990, according to Strategas Research.
Todd Sohn, ETF strategist at Strategas, said in a note to clients on Tuesday that Apple and Microsoft now account for more than 13% of the leading market index by themselves. Both stocks have outperformed so far this year, rising 22% and 13%, respectively.
"Tech's recent outperformance (defensive haven?) has resulted in the combined S&P 500 weight of AAPL (7.1%) + MSFT (6.1%) rising to new 30+ year highs. Concentration risk of the top 5 to 10 constituents was a hot topic during the post-covid market surge, but it's seemingly transitioned to just the top two heavyweights now," Sohn said.
— Jesse Pound
When it comes to the Federal Reserve's chances of raising interest rates tomorrow, former PIMCO chief economist Paul McCulley believes that "enough is enough."
"When you're looking at it from a risk management perspective, I can't come up with a table-pounding reason or a non table-pounding reason for tightening tomorrow," McCulley said Tuesday afternoon on "The Exchange." "I recognize that the marketplace is discounting that, but I look at this as the end of an incredible tightening cycle that is gripping the financial system and economy."
McCulley added that despite seeing increased fragility, he does not think the financial system is witnessing a "Minsky moment," a phrase that he coined referring to the sudden end of an economic boom and collapse in asset values. Some investors have recently warned of a possible "Minsky moment" ahead amid the recent banking failures.
— Pia Singh
First Republic Bank is considering scaling down its business if it fails to recover its large deposit outflows, according to a Reuters report on Tuesday.
Reuters cited two sources who said that the troubled bank is considering multiple options, including selling parts of its business and a sale of some loans.
First Republic Bank shares rallied Tuesday, rising 47% as of 1:57 p.m. ET. Nonetheless, the stock remains 85% lower from its levels at the start of March. Despite a group of major Wall Street firms announcing a $30 billion deposit infusion into First Republic last Thursday, the bank has not been able to secure enough new capital to stem its losses.
— Hakyung Kim
CEOs from big banks, including JPMorgan's Jamie Dimon and Bank of America's Brian Moynihan, are meeting in Washington Tuesday for a two-day scheduled gathering, Reuters reported, citing sources familiar with the matter.
First Republic Bank, which has been under pressure due to the large percentage of uninsured deposits, will be discussed at the meeting, Reuters reported.
— Yun Li
Stifel Financial reiterated its Buy rating on Novo Nordisk and raised its price target on the company by nearly $37 to about $174, indicating an upside of 21.4% from Monday's close.
Shares of Novo Nordisk are up 1.2% today and have gained 46.5% in the past six months.
"Our view is that, short-term, Novo Nordisk is all about the evaluation of the size of the obesity prescription drug market and accordingly, how much the group and its products can grab out of it," analyst Eric Le Berrigaud wrote in a note sent to clients on Tuesday.
Berrigaud noted the large target population of the obesity drug market, pointing out that "payers are starting to pay" and patients are now asking for prescriptions. Considering the potential for this market, the firm believes that limited penetration would lead to a mult-billion dollar market. Currently, the obesity drug market is worth $3 billion, compared to a $55 billion drug diabetes market, for reference.
— Pia Singh
All signs are increasingly pointing to a likely recession in the next 12 months, according to Wells Fargo.
The firm noted on Tuesday that the widening spread between the 10-year and 1-year treasury yield "breached its recession-prediction threshold in August," and is signaling a 91% likelihood of a downturn within a year.
Wells Fargo employed a three-pronged approach to forecast the odds of a recession in previous reports and highlighted the spread between both the 10-year yield and the 1-year yield as well as the fed funds rate and the 10-year.
"Since 1955, every time the fed funds rate has breached the 10-year yield's cycle low, a recession and accompanying change in monetary policy has occurred within the next 18 months," the firm said.
Meanwhile, "the likelihood of a deeper-than-average recession is rising" as the spread between the 10-year yield and the 1-year remaining negative.
- Brian Evans
Bitcoin has been on a steady climb since the crisis in the banking system began to emerge with Silvergate Bank earlier this month.
The cryptocurrency has rallied 45% over the past 11 days and is now past the key $25,200 level chart analysts had been watching, and sitting at $28,000.
Bitcoin is "showing upside exhaustion signals on both daily and weekly timeframes, and into what should be very heavy resistance in the $28,000-$30,000 range," BTIG's Jonathan Krinsky said in a note Tuesday.
"There is also a pretty large negative momentum divergence vs. the January highs," he added.
— Tanaya Macheel
Energy stocks outperformed during midday trading Tuesday. The sector was bolstered by rising oil prices, which recovered from a 15-month low, as investor concerns over a global banking crisis eased.
As of 1:13 p.m. ET, energy was the leading sector in the S&P 500, up roughly 2.8%. Shares of APA Corporation and Halliburton Oil Corporation were up about 6% and 4.4%, respectively.
— Sarah Min
Stocks are continuing their rally from Monday's gains.
The S&P 500 was recently up 0.67%, and the Dow Jones Industrial Average added 0.48%. The tech-heavy Nasdaq Composite rose nearly 0.64%. The 10-year Treasury yield rose to 3.564%.
— Pia Singh
Invesco Solar ETF (TAN) is up 4.93% as of Tuesday 12:45 p.m. ET, putting it on pace toward its best day since Nov. 30, 2022, when it gained 5.65%.
Canadian Solar is on track to close above its 50-day moving average level for the first time since Mar. 9.
— Hakyung Kim
These stocks are among those making the biggest moves in midday trading:
Click here to see more stocks making midday moves.
— Pia Singh
The recent strength in the stock market is showing up in the behavior of retail traders, Interactive Brokers Chairman Thomas Peterffy said on "Squawk on the Street."
"Investors, very interestingly, they have turned back to stocks," said Peterffy, who added that Interactive Brokers has seen about $1.5 billion going into the stock market on its trading platform over the past week.
The most popular stocks are mostly in the technology space, Peterffy said, pointing to Apple and Amazon as examples.
— Jesse Pound
Seven out of 11 sectors in the S&P 500 were trading in positive territory during midday trading on Tuesday, with financial stocks leading the broader index.
The financial sector rose 2.49% during midday trading after Treasury Secretary Janet Yellen gave reassurances Tuesday morning that the government is ready to step in if needed amid the banking crisis.
First Republic Bank shares jumped more than 39% on the back of those comments.
— Sarah Min
The recent crisis in the banking sector will lead to excess tightening in bank lending standards, according to Bank of America. The firm expects tighter lending standards to put downward pressure on economic activity.
"While policymakers employ tools to preserve financial stability in the short-run in response to emergent stresses in several regional banks, the open question is whether, and to what extent, the situation will lead to excess tightening in bank lending standards over time," the bank's U.S. economist Michael Gapen wrote in a Tuesday note.
He added, "While large enterprises have flexibility to access both the banking system and capital markets for funding, small business and households are more reliant on bank credit. The risk of a sizable shock to bank lending behavior has introduced downside risk to the outlook and, in turn, the Fed's policy path."
Gapen added that he anticipates a recession in the latter half of 2023 as a result of the recent fallout in the financial sector.
"We maintain our outlook for a mild recession that begins later this year, with a 1% peak- to-trough decline in GDP and a back-up in the unemployment rate to 4.7% by 2Q of next year," the economist said. "Prior to recent events we saw upside risks to our growth and projected Fed terminal rate ... Looking ahead, we feel headwinds from a weaker labor market, higher borrowing costs, tighter credit standards, and weaker balance sheets will lead consumers to reduce spending temporarily and push the saving rate higher."
— Hakyung Kim
As the Federal Reserve is looking to announce its latest monetary policy decision on Wednesday, Insight Investment believes that inflation will continue to remain high in 2023.
"The 2% inflation objective is unlikely to be realized in 2023 but there is some hope that we may see a more normal inflation environment by 2024," Brendan Murphy, Head of Core Fixed Income, North America wrote in a Tuesday note.
"As the lagged effect of the Fed's policy rate increases along with the more recent tightening of financial conditions associated with the banking sector concerns works their way through the economy, the effects are likely to be disinflationary. Those same conditions present many risks to the growth picture," Murphy added.
Insight Investment expects the central bank will raise interest rates by 25 basis points on Wednesday, but added that "the recent market volatility could be an opportunity for them to pause at this meeting."
"The argument for a pause is strong as another 25bp increase could be seen as contributing to market volatility and financial instability," said Murphy.
"However, not delivering on 25bps might cause some to question the Fed's resolve in bringing inflation lower which could create a whole new set of problems. Pausing may lead to an easing of financial conditions that work against their inflation goals."
— Hakyung Kim
These are some of the stocks hitting new highs during Tuesday's trading session:
— Samantha Subin
New York Community Bancorp's deal to have its subsidiary Flagstar take over basically all of Signature Bank's deposits, its 40 branches and some of its loan portfolio "checks many boxes," according to D.A. Davidson.
Analyst Peter Winter upgraded the stock to buy from neutral. His price target remained unchanged at $11.50, implying an upside of 33.6% from where the stock closed Monday.
The stock is up 5.2% in morning trading Tuesday, continuing to rally on the news of the deal. Shares have advanced 38.3% since Monday's session began.
Winter said the deal would bring more diversification to the bank's loan portfolio and strengthen its deposit franchise. But he did note the potential risk of the private banking and deposit gathering teams leaving and taking those relationships to competing banks.
Still, he said the deal provides funding flexibility and should help the company's margin.
— Alex Harring
Shares of First Republic soared by more than 38% on Tuesday morning. The move marks a reversal for the bank's losses yesterday, after Standard & Poor's cut its credit rating again over the weekend. Investors are optimistic after Janet Yellen's reassurances early Tuesday.
Shares of other U.S. regional banks continued to be in the green. Shares of PacWest Bancorp gained about 15.7%. Zions Bancorp. and KeyCorp added 5.3% and 5.8%, respectively. New York Community Bancorp. was up 1.8% and Fifth Third Bancorp rose 3.8%.
— Pia Singh
Sales of previously owned homes rose 14.5% in February compared with January, according to a seasonally adjusted count by the National Association of Realtors. That put sales at an annualized rate of 4.58 million units.
It was the first monthly gain in 12 months and the largest increase since July 2020, just after the start of the Covid-19 pandemic. Sales were, however, 22.6% lower than they were in February of last year.
Higher mortgage rates have been putting downward pressure on home prices since last summer. Home prices were lower year-on-year for the first time in 131 consecutive months, or nearly 11 years, in February.
— Hakyung Kim
Here's how the major indexes opened:
Investors are showing optimism after Treasury Secretary Janet Yellen said Tuesday morning that the government is willing to backstop more bank deposits if necessary.
— Pia Singh