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Friday, March 31, 2023

Wall Street rebounded after US inflation data and renewed expectations for rates

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The main indices of the New York Stock Exchange rose between 1% and 2.2%. Bank shares recovered part of the losses of recent days.


Wall Street’s main indices rebounded yesterday after inflation data in the United States was released in line with expectations and given renewed bets on a moderation in the Federal Reserve’s interest rate policy next week. The boost came from the recovery of some of the losses that small and midsize bank stocks had suffered after the collapse of Silicon Valley Bank, Signature and Silvergate.

According to preliminary data, the Dow Jones industrial index gained 1.06% yesterday; the technological Nasdaq, 2.14%; and the expanded S&P 500 index, 1.68%.

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Stocks in the financial sector rose and recovered part of the significant falls of the previous days. First Republic Bank rose 26.3% after plunging 67.5% in the previous three rounds. KeyCorp gained 9.8% and Charles Schwab rose 11.6%. It happened after the United States Government and the Fed launched a rescue plan for bankrupt bank savers so that they can access their deposits (not a rescue of shareholders and investors).

“The market is having a chance to digest some of the news from the last couple of days,” said Matthew Keator, managing partner at Keator Group of Massachusetts. “(Investors) are seeing a coordinated effort from various government agencies, and in retrospect, they have a feeling that things have slowed down a bit,” he added.

Another of the factors that drove the recovery was the change in expectations regarding the next rate decision by the Fed, which faces the dilemma of prioritizing the slowdown in inflation with a greater monetary adjustment or easing a bit to maintain the stability of the system. financial system, put in check by the banking crisis (see separate).

The truth is that until last week the predominant expectation was that of a tighter monetary policy. Even more so after the statements by the head of the body, Jerome Powell, who had even left the door open for an acceleration in the rate hike rate at the meeting on March 22.

However, the sudden financial shock caused expectations to be recalibrated. While the Fed faces a complex decision, it at least questioned tightening. To this was added the inflation data for February in the US, released yesterday, which marked 6% year-on-year: it was well above the 2% target set by the entity chaired by Powell, although in line with the expectations of the market.

Although opinions are still divided, more economic agents are now waiting for a review of their position by the Federal Reserve. “The financial market and a growing number of analysts believe that for now Fed officials will prioritize financial stability, rather than inflation, until financial stability concerns abate,” said Jorge Gordillo Arias, Director of Economic and Stock Market Analysis at CIBanco.

Source: Ambito

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