U.S. stock futures were higher ahead of the open on Tuesday following U.S. and European efforts to stabilize the banking system.
The ripples of the bank failures comes on the heels of the Federal Reserve’s next interest rate decision Wednesday. Its policy meeting kicks off Tuesday.
Bond yields are rising, “potentially indicating less of a recessionary impulse from the banking system,” according to the US Market Intelligence team at JPMorgan. The yield on the benchmark 10-year U.S. Treasury note rose 3.5% Tuesday morning. On the front end of the yield curve, two-year yields jumped to 4.1%.
The S&P 500 rallied nearly 1% to kick off the new week. According to data from Bespoke Investment Group, energy and materials were the top sector performers, each gaining over 2%. Tech, consumer discretionary, and communication services underperformed following last week’s strength.
The headliner event of the week will be a crucial two-day meeting of the Federal Reserve’s policy-making committee, where central bank officials face a tough decision whether to raise interest rates again or take a pause amid the turmoil in the banking sector.
Prior to the Silicon Valley Bank fallout, policy makers were poised to hike rates by as much as 50 basis points following a flurry of data showing a resilient economy. But given the crisis in the banking sector, many market participants forecast a smaller point increase — or none at all.
“Based on Powell’s recent hawkish shift in early March, the market is still giving the Fed room to hike 25bps at this upcoming meeting, but will not allow the Fed to get away with more tightening beyond that,” Victor Masotti, Director of Repo Trading at Clear Street, wrote in a statement.
The European Central Bank was confronted by a similar scenario on Thursday. As a result, the ECB raised interest rates by 50 basis points, saying it remains committed to dampening inflation while monitoring the turmoil in the banking sector.
“Our economists expect the Fed to follow the ECB’s lead and raise rates in line with expectations, do away with forward guidance, but signal a continued tightening bias,” Jim Reid and colleagues at Deutsche Bank wrote in an early morning note Tuesday.
With Credit Suisse’s (CS) solvency no longer a major concern after the weekend’s forced marriage between UBS (UBS) and Credit Suisse, US regional banks remain an area of focus. JPMorgan is reportedly leading talks with other banks about efforts to stabilize First Republic (FRC) after last week’s $30 billion deposit lifeline failed to restore confidence. Shares soared in premarket trading after sinking 47% Monday.
Meanwhile, the U.S. government is exploring ways to guarantee all bank deposits, an effort that wouldn’t need Congress to pass a new law, Bloomberg reported. Treasury Secretary Janet Yellen said at an event Tuesday morning that the government could backstop more deposits if necessary for smaller lenders, CNBC reported.
Here are the trending tickers on Yahoo Finance:
Amazon (AMZN): The company plans to make deeper cuts to its workforce, laying off 9,000 more employees in the coming weeks, CEO Andy Jassy announced in a memo to staff on Monday. The move comes after 18,000 workers were laid off earlier this year.
Digital World Acquisition Corp. (DWAC): Digital World Acquisition is a SPAC expected to merge with Donald Trump’s Trump Media & Technology Group. The stock witnessed volatility after Trump said he expected to be arrested on Tuesday over alleged hush-money payments in 2016.
Outside of the Fed’s policy meeting, economic reports are due to pour in, including housing data, services and manufacturing activity readings from S&P Global.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv