Dow jumped 472 (session highs), advancers over decliners a massive 8-1 & NAZ advanced 265. The MLP index rebounded 3+ to the 223s & the REIT index gained 5+ to the 371s. Junk bond funds went up along with stocks & Treasuries were sold as yields rallied (more below). Oil dropped about 1 to the high 73s & gold pulled back 7 to 1909.
AMJ (Alerian MLP Index tracking fund)
Just a few days ago, a debate was raging over how big of an
interest-rate hike the Federal Reserve would deliver at its Mar
meeting in the face of hotter-than-expected economic data. Chair Jerome Powell took markets by surprise last week when he suggested the Fed may need to raise rates
higher than previously anticipated & pick up the pace of increases
amid signs of broad inflationary pressures within the economy. The
hawkish commentary prompted investors to re-evaluate their expectations
for the meeting, with many ramping up the odds that the Fed approves a ½-percentage point hike during its Mar 21-22 meeting. But analysts no longer see that as a possibility after the stunning implosion of
Silicon Valley Bank roiled global markets & triggered fears
of a broader financial meltdown. The
probability that the Fed pauses its rate-hike campaign next week rose
to 28% today, according to data from the CME Group's FedWatch tool,
up from 0% just one day ago. About 71% of traders, meanwhile, are
anticipating a typical ¼-point hike. Goldman Sachs (GS) is among
the notable financial firms predicting the Fed will not deliver a
rate hike at its meeting, citing "recent stress" in the financial
sector. The firm previously expected a 25-basis point increase. "In
light of the stress in the banking system, we no longer expect the FOMC
to deliver a rate hike at its next meeting on March 22," GS
economist Jan Hatzius said on Sun. Many
economists expect the Fed will continue to raise rates next week,
albeit at a slower & more cautious pace than it would if not for the
collapse of SVB, a key lender to tech startups & venture capital
firms. That's in part because federal regulators stepped to shore up the banking system & backstop all deposits at SVB. "While
the Fed has historically cut interest rates following major negative
financial events, such as a bank failure, efforts by regulators to bail
out SVB depositors and provide loans to struggling banks will reduce
systemic risk and enable the Fed to continue raising interest rates in
an effort to keep fighting inflation," said Richard Saperstein, chief
investment officer at Treasury Partners.
SVB failure throws Fed rate-hike decision next week into uncertainty
Inflation remained uncomfortably high in Feb, although it has cooled slightly from a peak notched in 2022. 
The
Labor Dept said that the consumer price index, a broad
measure of the price for everyday goods including gasoline, groceries & rents, rose 0.4% in Feb from the previous month. Prices climbed
6% on an annual basis. Those figures were both in line with forecasts. It
marked the slowest annual inflation rate since Sep 2021. Still,
inflation remains about 3 times higher than the pre-pandemic
average, underscoring the persistent financial burden placed on Ms
of US households by high prices. Core prices, which strip out the more volatile measurements of food & energy, climbed 0.5% over the course of Feb, slightly faster
than in Jan. On a 12-month basis, core prices are up 5.5%. The report is the last before the Federal Reserve's
next policy-setting meeting on Mar 21-22 & will have major
implications for the central bank, which is tightening monetary
policy at the fastest rate in decades as it tries to crush
out-of-control inflation. Rate-hike expectations were thrown into uncertainty after the
stunning implosion of Silicon Valley Bank on Fri roiled global
markets & triggered fears of a broader financial meltdown. The
probability that the Fed pauses its rate-hike campaign next week fell to
18% today after the latest CPI release, according to data from the
CME Group's FedWatch tool, down from 28% just one day ago. About 82% of
traders, meanwhile, are anticipating a typical ¼-point hike.
Prices remain elevated as Fed's inflation fight takes a twist
The yield on the 2-year Treasury note climbed, rebounding after posting its biggest 3-day slide since 1987 as investors flocked to safety in the wake of Silicon Valley Bank's collapse. The 2-year Treasury yield was last at 4.296% after climbing nearly 27 basis points. It had declined by 59 basis points yesterday, notching the biggest 3-day drop since the fallout from the 1987 stock market crash. The yield on the 10-year Treasury was last up by more than 7 basis points to 3.59%. Yields & prices move in opposite directions & 1 basis point equals 0.01%. Yields rebounded today after shockwaves linked to Silicon Valley Bank's (SVB) failure continued to reverberate through markets, having pushed investors into safer assets like gov bonds. Bond yields plummeted following the bank's collapse, which sparked fears of broader issues across the banking sector. At the same time, investors digested Feb's consumer price index report, which rose 0.4% for the month, in line with expectations, bringing the annual rate to 6% over a year ago. The report serves as one of the last major data points ahead of the Federal Reserve's next policy meeting. In the wake of SVB's collapse & its impact on the banking sector, markets appear to be pricing in a 25 basis increase. Investors had been expecting the central bank to pick up the pace of rate hikes again & announce a 50 basis point increase at its upcoming meeting on Mar 21-22 as Fed Chair Jerome Powell suggested last week that rates could go, & stay, higher than anticipated for longer, depending on economic data readings. Some economists also believe that rate hikes could be paused altogether amid a string of failures in the banking sector, or that the Fed might stick to lower rate increases at its next 2 meetings.
2-year Treasury yield rebounds after biggest 3-day slide since 1987
Stock buyers were ready at the market opening to buy & they are are still buying. Of course the Dow was oversold (see the chart below), so a rebound was expected. Encouraging comments from gov regulators brought some calm to banking stocks & the inflation data added to investor enthusiasm. The producer price index, which shows inflation in the coming weeks, will be released tomorrow & that should show easing inflation rates. However, prices are at elevated levels compared with the recent past & that will still weigh on the minds of consumers.Dow Jones Industrials
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