Tuesday started off strong for stocks, but the major benchmarks finished off their session highs on reports that a Russian aircraft collided with a U.S. drone in the Black Sea.
The February consumer price index (CPI) drew plenty of attention from investors, though it gave a mixed picture on inflation. Also in focus were regional bank stocks, which rebounded sharply after the failures of Silicon Valley Bank and Signature Bank sparked massive share-price losses across the industry.
Ahead of the opening bell, the Bureau of Labor Statistics said that the February CPI was up 6% year-over-year, the smallest annual increase since late 2021. Core CPI, which excludes volatile food and energy prices, rose 5.5%. On a monthly basis, headline CPI was up 0.4% – down from January's 0.5% increase – though core CPI rose 0.5%, its fastest pace since September.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
"A big driver of the increase within core was shelter which was up 0.8%, [but] markets are willing to look past this given lags in the data and real-time data that is showing rents are falling," says Michael Reinking, senior market strategist at the New York Stock Exchange.
Expectations that the Fed will issue a 25 basis point (0.25%) interest rate hike at its upcoming meeting rose to 78% from 65% yesterday, while the probability that the central bank will pause fell to 23% from 35%. Chances for a 50 bp rate hike are off the table, according to CME Group.
Regional bank stocks helped the financial sector (2.1%) surge today. First Republic (FRC, +27.0%) and PacWest Bancorp (PACW, +33.9%) were among the day's biggest gainers, after each stock plunged by double-digit percentage points on Monday when the collapse of Silicon Valley Bank and Signature Bank sparked contagion fears.
"Regarding SVB, while we are reluctant to suggest 'it's different this time,' we can suggest it's not quite the same," says Daniel Berkowitz, investment director for investment manager Prudent Management Associates. "Executives of SVB didn't invest the bank's assets in high-risk investments which is a far cry from the excessive risk-taking related to complex mortgage-backed securities that ultimately triggered the 2008-2009 crisis."
The major indexes, meanwhile, were up between 1.5% and 2.5% at their session peaks, but ended the day off these highs on news of a collision between a Russian jet and a U.S. drone over the Black Sea. The two nations regularly conduct operations in the area, but Russia's actions were done in "a reckless, environmentally unsound and unprofessional manner," the U.S. European Command said in a press release. The Nasdaq Composite closed up 2.1% at 11,428, the S&P 500 added 1.7% to 3,920, and the Dow Jones Industrial Average rose 1.1% to 32,155.
The best cheap stocks to buy
Today's price action was likely a welcome development for investors who have been sent on a roller-coaster ride in recent sessions. However, they would be wise to stay on their toes for a bit longer. While the February CPI report is now in the books, more economic data points – including tomorrow's producer price index and retail sales – will be released ahead of the next Fed meeting. And while a quarter-point rate hike is currently expected, the last seven days have shown us that anything can happen in a week.
There are a number of ways investors can protect their portfolios against volatility risk, including with traditional safety plays like utility stocks or consumer staples stocks. They can also target the best low-volatility stocks.
But some investors find market swings exhilarating – and what better way to enjoy the ride than with cheap stocks. Plenty of folks avoid cheap stocks because the names are risky and volatile – and the fundamentals are frequently discouraging. But others love playing cheap stocks because of their affordability and potential to produce big gains in short order. Buyer beware, however: cheap stocks can fall just as quickly as they can rise, so if you do decide to buy them, do so in small amounts that you can afford to lose.
-
CPI Report Puts the Kibosh on Rate Cuts: What the Experts Are Saying About InflationCPI Consumer price inflation reared its ugly head to start the year, dashing hopes for the Fed to lower borrowing costs anytime soon.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
CPI Report Keeps the Fed on Track: What the Experts Are Saying About Inflation
CPI Disinflation in key areas of consumer prices should help the Federal Reserve stick to its policy path of gradual cuts to interest rates.
-
Blowout December Jobs Report Puts Rate Cuts on Ice: What the Experts Are SayingJobs Report The strongest surge in hiring since March keeps the Fed on hold for now.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
CPI Report Casts Doubt on Rate Cuts in 2025: What the Experts Are Saying About Inflation
CPI November Consumer Price Index data sealed the deal for a December rate cut, but the outlook for next year is less certain.
-
Rebound in Jobs Growth Keeps Fed on Track: What the Experts Are Saying
Jobs Report No nasty surprises in the November payrolls data leaves a quarter-point cut in play.
-
October CPI Report Hits the Mark: What the Experts Are Saying About Inflation
CPI While the current pace of rising prices appears to have leveled off, the expected path of rate cuts has become less certain.
