Stocks, regional banks rally as CPI comes in as expected

U.S. stocks rallied Tuesday morning, as crucial inflation data came in line with expectations. Regional bank stocks soared, clawing back some of their losses in the wake of the Silicon Valley Bank fallout.

The S&P 500 (^GSPC) added 1.3%, while the Dow Jones Industrial Average (^DJI) advanced 1%. Contracts on the technology-heavy Nasdaq Composite (^IXIC) increased 0.4%.

Bond yields edged higher. The yield on the benchmark 10-year U.S. Treasury note ticked up to 3.6% Tuesday morning from 3.54% Monday. The front end of the yield curve, two-year yields rose 4.3%.

February’s Consumer Price Index (CPI) showed prices rose 6.0% in February over the last year, the smallest increase since September 2021, and in line with economist expectations. Meanwhile, core CPI, which strips out food and energy, grew 5.5%, also in-line with expectations.

The data comes at a critical moment in the Federal Reserve’s fight against inflation, as the collapse of Silicon Valley Bank and the ongoing ramifications have added a new wrinkle.

On Wednesday, the Commerce Department will release February’s retail sales print revealing how much was spent at stores, online, and at restaurants. Meanwhile, February’s producer-price index, which measures what suppliers are charging businesses, will be out the same day.

Investors continued to be glued to the latest headlines over the collapse of SVB Financial Group (SIVB) and the implications for the banking sector.

Bank sentiment rebounded slightly for members of the KBW Bank index (^BKX), which had dropped nearly 12% on Tuesday. The index was up 6% in early trading Tuesday, while large-cap index members including Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) all traded higher.

Other regional bank stocks rallied, including First Republic Bank (FRC), which surged over 60% Tuesday morning following a record plunge on Monday. PacWest Bancorp (PACW), Western Alliance Bancorporation (WAL), Zions Bancorporation (ZION), and Regions Financial (RF) all jumped on Tuesday.

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The question remains who will be a contender to scooping up SIVB’s remaining assets following the FDIC’s takeover. The FDIC was hoping to sell the bank’s assets on Sunday but instead created bank to store SVB’s deposits and announced that depositors would be made whole.

Meanwhile, the market will likely be “wrestling” with the Fed’s path as it has to “weigh financial stability” vs. “inflation risks,” according to the US Market Intelligence team at JPMorgan.

So far, market participants are quickly shifting their expectations over the Fed’s next move. Data from CME Group shows that over 75% of traders are expecting a 25-basis-point-rate hike at the Fed’s March meeting, while nearly 25% anticipate rates unchanged, a dramatic shift from last week.

Also, the Fed said it would conduct a review of the fallout of Silicon Valley Bank. The results will be publicly released by May 1, the central bank said on Monday. The review will be led by Michael Barr, the Fed vice chair for supervision.

“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve,” Fed Chair Jerome Powell said in a statement.

In other single-stock moves, KeyCorp (KEY) advanced nearly 20% Tuesday after tumbling in the previous trading session. Credit Suisse Group AG (CS) shares remained down, while Charles Schwab (SCHW) stock moved higher.

Shares of GitLab (GTLB) plummeted over 30% after the company reported a weaker revenue forecast for the fiscal first quarter and year, missing analysts’ expectations.

On the earnings front, FedEx (FDX), Adobe (ADBE), Dollar General (DG), and Lennar (LEN) will report quarterly results this week.

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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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