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Stock futures rose on Tuesday as traders tried to build on Monday’s rally, sparked by the hope that the banking turmoil would be contained. Futures on the Dow Jones Industrial Average gained 237 points, or 0.7%, while S&P 500 futures climbed 0.7%, and Nasdaq-100 futures were up 0.4%.
Regional banks led the early trading surge, with First Republic jumping 21.9% after losing 47% the previous day. The SPDR Regional Banking ETF gained 3%, boosted by news that the US government is exploring ways to temporarily expand Federal Deposit Insurance Co. coverage to all deposits.
Investors are hoping for a slower pace of tightening from the Federal Reserve in light of the banking crisis, with traders pricing in an 83% chance of a quarter-point rate hike when the Fed wraps its two-day policy meeting on Wednesday, according to CME Group’s FedWatch tool.
Morgan Stanley analyst Brian Nowak upgraded Meta Platforms to overweight from equal weight, saying the stock can rally more than 25% going forward. “We are taking a more conservative approach with forward ad growth, and if the consumer does weaken, we think META is better positioned than GOOGL and AMZN,” Nowak said in a note to clients on Tuesday.
Wall Street is coming off a strong rally, with the Dow surging more than 380 points on Monday, while the S&P 500 gained 0.9%. Investors welcomed the news that JPMorgan Chase could be advising embattled First Republic Bank on strategic alternatives.
“Bank selling appears exhausted, and it would take the emergence of fresh deposit problems at a new name to bring out incremental supply, although there’s very little interest to step in and buy the group, especially the regionals,” said Adam Crisafulli, founder of Vital Knowledge.
However, risks of contagion are rising and could push the Fed to pause the current rate-hiking cycle, according to Jeffrey Roach, the chief economist at LPL Financial. “The Fed will likely signal they are near the end of their rate-hiking campaign as recession risks increase and inflation pressures decrease,” he said.
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