S&P 500 racks up gains as banking fears cool ahead of Fed meeting

By Yasin Ebrahim                                                  

Investing.com -- The S&P 500 rose Tuesday, led by a First Republic-led climb in bank stocks after Treasury Secretary Janet Yellen pledged more support for banks.

The S&P 500 was up 1.1%, the Dow Jones Industrial Average gained 0.7%, or 237 points, and the Nasdaq Composite was up 1.4%.

In a sign that fears about a contagion in the banking sector are cooling, First Republic Bank (NYSE:FRC) jumped more than 30% 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 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.

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.

“Our base case is 25bp hikes in March and May but we think the Fed then will be pushed into signalling easier policy late this year, thanks to very weak economic growth, a sustained downshift in core inflation, and clear evidence that wage growth is moderating to a pace consistent with the inflation target,” Pantheon Macroeconomics said in a recent note.