Stocks Rally as Bank Tensions Ease

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +1.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.98%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.42%.

Stock indexes Tuesday posted sharp gains, with the S&P 500 and Dow Jones Industrials posting 1-1/2 week highs and the Nasdaq 100 posting a 6-week high.  Stocks rallied as banking tensions eased.  Bank stocks rallied following a Bloomberg report that U.S. officials are studying ways they might temporarily expand Federal Deposit Insurance coverage to all bank deposits. 

First Republic Bank surged more than +29% Tuesday following a proposal from JPMorgan Chase to boost the bank’s capital.  Also, UBS Group AG closed up more than +13% on improved sentiment about its takeover of Credit Suisse Group AG. 

Tuesday's comments from Treasury Secretary Yellen supported bank stocks and boosted market sentiment when she said, "our intervention was necessary to protect the broader U.S. banking system, and similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."

The FOMC began its 2-day meeting Tuesday.  The federal funds futures market is discounting about an 80% chance for the Fed to raise its federal funds target range by +25 bp to 4.75-5.00% from the current 4.50-4.75%.  However, stocks are finding support from speculation the Fed may adopt a more cautious approach to tightening monetary policy and could slow or pause its pace of quantitative tightening to keep ample liquidity in the financial system.

A Bloomberg report said U.S officials are studying ways they might temporarily expand Federal Deposit Insurance coverage to cover all deposits greater than the $250,000 cap on most accounts.  The Mid-Size Bank Coalition of America, which includes banks with assets up to $100 billion, expressed concern that if another regional lender fails, more depositors will move their money to the nation's largest banks, regardless of the underlying health of their smaller competitors.

Tuesday’s U.S. economic news supported stocks after Feb existing home sales jumped +14.5% m/m to a 5-month high of 4.58 million, stronger than expectations of 4.20 million.

Global bond yields moved higher Tuesday as banking turmoil eased and stocks rallied.  The 10-year T-note yield rose +10.5 bp to 3.590%, the 10-year German bund rose +16.7 bp to 2.292%, and the 10-year UK gilt yield rose +5.7 bp to 3.367%. 

Overseas stock markets Tuesday settled higher.  The Euro Stoxx 50 closed up +1.51%.  China’s Shanghai Composite stock index closed up +0.64%, and Hong Kong’s Hang Seng Index closed up +1.36%.  Japan was closed today for the Vernal Equinox Day holiday. 

Today’s stock movers…

First Republic Bank (FRC) closed up more than +29% to lead gainers in the S&P 500 on a JPMorgan Chase plan to convert some or all of the $30 billion deposit injection by a group of the largest U.S. banks into a capital infusion, which would substantially strengthen the bank’s balance sheet and financial health. 

Bank stocks rallied Tuesday on a report from Blomberg that said U.S. officials are studying ways they might temporarily expand Federal Deposit Insurance coverage to all bank deposits.  KeyCorp (KEY), Truist Financial Bank (TFC), and Comerica (CMA) closed up more than +9%. US Bancorp (USB) closed up more than +8%, and Zions Bancorp (ZION) closed up more than +6%. Citizens Financial Group (CFG), Capital One Financial (COF), Huntington Bancshares (HBAN), Lincoln National (LNC), Synchrony Financial (SYF), M&T Bank (MTB), Fifth Third Bancorp (FITB), State Street (STT), and Regions Financial (RF) closed up +4% or more.

Electric vehicle makers moved higher after BNEF reported that 2022 electric vehicle sales jumped +60% y/y to 10.4 million units.  As a result, Tesla (TSLA) closed up more than +7%. Also, Lucid Group (LCID) closed up more than +6%, and Rivian Automotive (RIVN) closed up more than +4%.

Charles Schwab (SCHW) closed up more than +5% on signs of insider buying after an SEC filing showed Bernard Clark, head of Schwab’s advisor services, bought $274,154 of his company’s stock last Friday.

Harley-Davidson (HOG) closed up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight. 

Emerson Electric (EMR) closed up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight. 

Utility stocks tumbled Tuesday from higher bond yields and reduced demand as a safe haven due to the rally in the broader market.  Atmos Energy (ATO) closed down more than -4% to lead losers in the S&P 500.  Also, Alliant Energy (LNT), Consolidated Edison (ED), CenterPoint Energy (CNP), and CMS Energy (CMS) closed down by more than -3%. In addition, American Electric Power Co (AEP) closed down more than -3% to lead losers in the Nasdaq 100.  Finally, Xcel Energy (XEL), Ameren Corp (AEE), WEC Energy (WEC), Duke Energy (DUK), Exelon (EXC), and FirstEnergy Corp (FE) closed down more than -2%.

Intel (INTC) closed down more than -2% to lead losers in the Dow Jones Industrials after the Commerce Department said the $50 billion CHIPS and Science Act would bar firms that win grants from expanding output by 5% for advanced microchips and 10% for older technology.

Across the markets…

June 10-year T-notes (ZNM23) on Tuesday closed down -31 ticks, and the 10-year T-note yield rose by +10.5 bp to 3.590%.  An easing of banking concerns sparked a rally in stocks Tuesday that curbed safe-haven demand for T-notes.  Also, Tuesday’s stronger-than-expected U.S. Feb existing home sales report was bearish for T-notes.

T-notes dropped to their lows Tuesday afternoon on weak demand for the Treasury’s $12 billion auction of 20-year T-bonds, which had a bid-to-cover ratio of 2.53 that was below the 10-auction average of 2.59.

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