The US stock market rallied on Tuesday as investors bet that contagion risk to banks is under control after the closure of Silicon Valley Bank and Signature Bank.
The Dow Jones closed, gaining 1.06%, at 32,155.40, after a series of declines in the previous days. The S&P 500 rose 1.65% to close at 3,919.29, and the Nasdaq Composite made +2.14% to close at 11,428.15.
In the morning, US stock futures started higher after the continuous losses of the Dow Jones for the previous five days. Early indications were that Dow Jones Industrial Average futures were up nearly 160 points (+0.5%), and futures for the S&P 500 and Nasdaq-100 were up 0.5% each.
Traders were anxiously awaiting a critical inflation report due on Tuesday. Traders looking to rally after the Dow Jones losses, pre-market trading of the SPDR S&P Regional Banks (KRE) ETF was up more than 4%. During extended trading, shares of First Republic Bank soared 24% after dropping nearly 62% on Monday. KeyCorp also experienced a rebound of relief, with its shares rising about 13% after a 27% drop.
The bankruptcy of the California-based SVB led to significant sell-offs in the banking sector, which continue to impact Asian markets. The Nikkei fell 2.2%, the Hang Seng 1.7%, and Shanghai 0.45% on Tuesday morning. Additionally, the price of gold fell to $1,912 an ounce, while oil is now trading at $74 a barrel.
Also, on Tuesday morning, the dollar’s value rose against other currencies. The euro fell 0.3% to 1.0704, the yen fell 0.3% to 133.58, and the pound fell 0.12% to 1.2169. In addition, the yield on the US 10-year bond decreased from 3.57% at the start of the Asian session to 3.518%.
Financial markets are still feeling the effects of the collapse of the Silicon Valley Bank, which caused European stock markets to open cautiously on Tuesday.
As of March 15, China will resume releasing almost all types of visits to foreigners, signaling a move away from the strict measures of the zero Covid policy. The Chinese government will also allow visa-free entry to some areas, such as Hainan Island and cruise ships docked in Shanghai and Guangdong, to Hong Kong and Macao citizens.
The Chinese Embassy in the United States made the announcement. In related news, President Xi Jinping is expected to visit Moscow shortly, while President Biden is expected to have a telephone conversation with Xi.
In the US, the banking sector experienced severe turmoil as investors scrambled to reduce their exposure to the sector, prompting a series of selling events.
This sudden collapse coincided with the announcement by the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. of a new protection plan for the banks, sufficient to save the entire national assets. Furthermore, Michael Burry, who stood out for shorting the real estate sector in 2008 before the official crisis erupted, compared the collapse of SVB to the 2008 financial crisis. SoftBank also took a significant hit, according to Bloomberg.
Meanwhile, just after markets opened on Tuesday, the Dow Jones Industrial Average was up 400 points on positive financial data and a significant inflation report. Strength is building on Wall Street that the Federal Reserve will not raise interest rates at its next meeting following the collapse of three banks and concerns about the financial sector at large.
This could reduce the importance of the consumer price index, which increased by 0.4% in February, as expected. Core CPI rose 0.5% in February, up 0.4% expected. The CPI headline inflation rate was in line with estimates at 6.0%, while the core inflation rate came in at 5.5%.
Price lists for Tuesday, March 14, 2023
DOW Jones +1.06% to 32,155.40
S&P 500 +1.65% to 3,919.29
NASDAQ 100 +2.14% to 11,428.15.