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Stock market today: Dow rides cooling banking jitters higher; Fed decision eyed

Published 03/21/2023, 04:04 PM
Updated 03/21/2023, 04:39 PM
© Reuters.

By Yasin Ebrahim                                                  

Investing.com -- The Dow climbed Tuesday, as a rally in First Republic Bank signaled easing worries about a further bump in the banking sector just a day ahead of the Federal Reserve's monetary policy decision. 

The Dow Jones Industrial Average gained 1%, or 316 points, the Nasdaq Composite was up 1.6% and the S&P 500 was up 1.3%.

In a sign that fears about contagion in the banking sector are cooling, First Republic Bank (NYSE:FRC) jumped about 30% on the day after Yellen said the U.S. government would be prepared to step in again and offer to support smaller banks in the event of bank runs. 

The rally in First Republic also comes amid reports suggesting the bank is mulling various options including the sale of parts of its business if it fails to recover deposit outflows.

Other regional banks including U.S. Bancorp (NYSE:USB), Comerica Inc (NYSE:CMA), and KeyCorp (NYSE:KEY) were sharply higher, with the latter rising by more than 9%.

Energy, meanwhile, was up more than 3%, led by a jump in oil prices on easing fears about the global growth impact of a potential contagion in banks and a climb in Exxon Mobil Corp.

Exxon Mobil Corp (NYSE:XOM) was up more than 4% after Morgan Stanley touted optimism on the oil major, citing its “competitive positioning.”

Consumer discretionary stocks also supported the broader market melt-up, underpinned by a rally in Tesla (NASDAQ:TSLA) after Moody’s upgraded Tesla’s creditworthiness to investment grade, or Baa3, from junk status, citing the EV maker’s prudent financial policy.

As well as its escape from junk territory, Tesla was also lifted by retail sales data from China Merchants Bank International suggesting the automaker could report strong first-quarter sales in its key China market. 

The rally in the broader market comes just as the Fed kicked off its two-day meeting that many expect to culminate in a quarter-point rate hike on Wednesday.

"I estimate that we will see Fed hike rates about 50 basis points [over the next two meetings]," Victoria Bills, Chief Investment Strategist at Banrion Capital Management told Investing.com's Yasin Ebrahim in a recent interview. "The Fed has to make certain that it is aligned with getting to its 2% inflation target...we are very far away from it," Bills added. 

The Fed’s projections about the future path of interest rate hikes will also garner attention as markets are pricing in cuts later this year. "[W]e still expect tighter credit, economic contraction, and falling inflation to lead to rate cuts this year," UBS said.

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