US Stock Markets Up As Regional Bank Fears Signal FED Rate Cuts Soon
US banks worries, have returned, sending bond yields crashing lower, with the USD joining in yesterday. The KRE regional banking ETF dived more than 10% in the last two days, but despite that, yesterday the wider US stock market rallied higher and reclaimed all the losses from the previous day.
US Stock Markets Reversed Higher Yesterday Despite the KRE Crash
On Wednesday, US indices ended up crashing lower, however they close January with solid gains. Dow Jones plummeting almost 1% lower, the S&P 500 slid by 1.6%, and the Nasdaq Composite by 2.2% as the regional baking problems started boiling and the FED sounded less dovish than anticipated, postponing the first rate cut for May. But, we saw a strong rebound yesterday and all three main indices erased the decline from the previous day.
US Stock Indices Changes Yesterday
- S&P 500 +1.2%
- Nasdaq Composite +1.3%
- Dow Jones +1.0%
- Russell 2000 +1.3%
Why Did Stock Indices Rally?
So, stock indices already started the new month with positive attitude, as Dow gained 1%, S&P increased by 1.2%, and Nasdaq by around 1.3%. How come this be when we might see a banking crisis which would put the global economy in recession for sure? The first reason for this reversal is that markets got sort of used to last year’s banking crisis, which was eventually taken care off, with intervention by the FED. So, traders might be thinking that this too will pass without much hassle.
The other more logical reason is that investors views this crisis as a potential reason for the Federal Reserve to start lowering interest rates sooner. The FED didn’t satisfy the expectations for a March cut on Wednesday, pointing more toward a May cut, which helped the USD late that day. But, they are now expected to start the policy easing cycle sooner, and may front-load rate cuts in the first half of 2024. This would push investors toward stocks instead of bonds, so the stock market is benefiting from this.
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