The major Wall Street indexes traded higher on Tuesday, led by energy and financial stocks, even as worries about contagion among regional banks eased and investors awaited the Federal Reserve’s decision on monetary policy.
“After a wobbly start, it seems markets have reacted positively to the measures taken to shore up financial markets from further contagion,” ING said. “In the U.S., there is a growing consensus that regional banks’ vagaries will result in a degree of credit tightening for the economy but we would expect the Fed to still be in a position to hike 25 basis points.”
Markets are widely expecting a 25-basis point hike. However, a small percentage of market participants expect the Fed the keep its benchmark rate unchanged, according to CME FedWatch Tool.
“We expect Chair Powell to strongly argue the banking system is safe, sound, and well capitalized,” said UBS economist Jonathan Pingle. “As a result, we expect the Committee not to pause and risk signaling the banking system cannot withstand a 25-bp rate increase, nor risk admitting rapid front-loading may have been more risky than they previously assumed.”
Financial stocks continued to stage a recovery, with the S&P 500 Financial index and the Financial Select Sector SPDR ETF (XLF) up over 2% each.
Energy stocks also gained as crude oil continued higher for the second straight day.
On the economic calendar, February existing home sales blew past estimates, up 14.5% M/M at 4.58M vs. 4.19M expected. “As a rate sensitive sector, housing did respond to the Fed’s relentless ‘hike, hike, hike’ approach,” said UBS chief economist Paul Donovan. “This is old news. What is more relevant is whether tighter lending conditions impact the unconscious borrowing of credit cards.”
More on the bank crisis