Major Averages Advanced After February Inflation Eased, Regional Banks Rebounded

Barry Adams
14 Mar, 2023
New York City

Stocks rebounded on Tuesday after consumer inflation matched expectations and regional banks trimmed losses of previous three trading days. 

Consumer price index rose at a slower pace in February after energy prices eased but core inflation accelerated following the surge in housing costs. 

The easing of overall inflation powered the morning rally and benchmark indexes advanced between 1% and 2%. 

Regional banks also rebounded between 15% and 40% after three days of steep losses following the collapse of three banks in less than a week. 

Despite today's rebound, the banking sector is not out of the woods and more significant declines may be ahead. 

Banking sector has unrealized losses of $620 billion linked to Treasury notes and bonds holdings, and higher rates for longer will only expand these losses. 

Moreover, small and mid-sized banks approaching investors to shore up capital may spook depositors and start a bank run that may not be easy to prevent. 

Moody's Investor Services lowered its view on the U.S. banking system to "negative" from "stable" citing liquidity, earnings and capital worries. 

“Banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital,” the rating agency noted in a report. 

Belatedly, Moody's removed all its rating on Signature Bank and placed six mid-sized banks on its watch list with a view to downgrade bank ratings. 

Comercia, INTRUST Financial, First Republic Bank, UMB Financial Corp, Western Alliance and Zions Bancorp are on Moody's watch list. 

 

February CPI Slowed, Core Rate Accelerated 

The consumer price inflation eased to 6.0% in February from 6.4% in January, the U.S. Labor Department reported Tuesday.  The price increase was the smallest since September 2021. 

On a monthly basis, the overall index increase slowed to 0.4% in February from 0.5% in January. 

The shelter index was the largest contributor to the overall inflation accounting for 70% of total increase in the month. 

Core prices excluding food and energy accelerated to 0.5% in February from 0.4% in January and rose 5.5% on an annual basis. 

The energy index slowed to 5.2% in February from 8.7% in the previous month, the food index increase slowed to 9.5% from 10.1% but the shelter index jumped to 8.1% from 7.9%. 

 

Indexes & Yields 

The S&P 500 index increased 1.8% to 3,926.42 and the Nasdaq Composite index soared 2.3% to 11,444.02. 

The yield on 2-year Treasury notes increased 31 basis points to 4.35%, 10-year Treasury notes jumped 15 basis points to 3.66% and 30-year Treasury bonds jumped 9 basis points to 3.75%.  

Crude oil fell 93 cents to $73.79 a barrel and natural gas fell 4 cents to $2.55 a thermal unit. 

 

U.S. Stock Movers 

Regional banks rebounded a day after several regional banks fell between 30% and 60%. 

First Republic Bank jumped 54% to $48.01, Western Alliance Bancorp rebounded 38.9% to $36.05 and KeyCorp advanced 11.5% to $11.25. 

Stocks of order delivery firms and ride-sharing companies jumped after a California appeals court permitted companies to classify their drivers as independent contractors and not employees. 

Uber Technologies Inc gained 6% to $32.72, Lyft Inc increased 5.6% to $8.90 and DoorDash Inc advanced 6.8% to $57.47. 

Credit Suisse AG declined 2% to $2.22 after the Swiss bank said it has discovered "material weakness" in its financial reporting processes. 

United Airlines Holdings Inc decreased 4.7% to $46.52 after the airline forecasted first quarter loss citing higher fuel costs and weaker demand growth. 

The international airline estimated adjusted loss in the range of 60 cents and $1.0 compared to its previous estimate of a profit between 50 cents and $1.0.

Cvent Holding Corp jumped 12.3% to $8.30 after the event technology firm agreed to be acquired by Blackstone controlled private equity funds for $8.50 a share or $4.6 billion of enterprise value.   

GitLab Inc plunged 32.6% to $30.71 after the cloud computing software company estimated sharply lower revenue in 2024. 

The software services provider estimated revenue to fall between $529 million and $533 million in 2024. 

Revenue in the fourth quarter increased 58% to $122.9 million from $77.8 million and loss attributable to shareholders fell to $38.7 million from $45.8 million and diluted loss per share shrank to 26 cents to 32 cents a year ago.