Some banks bounce back as indexes climb

Stocks ended broadly higher Tuesday on Wall Street, as some of the most breathtaking moves from a manic Monday reversed course.

The S&P 500 rose 1.7 percent after a report showed inflation is still high but heading lower. Stocks of smaller and midsize banks recovered some of their prior plunges caused by worries that customers could yank out all their cash. Treasury yields soared to trim their historic drops.

The Dow Jones Industrial Average rose 1.1 percent, while the Nasdaq composite added 2.1 percent. Gains in technology stocks, banks and communications services companies powered much of the rally.

Tuesday’s report showed that inflation at the consumer level was 6 percent in February, versus a year before. That matched economists’ expectations and was a slowdown from January’s 6.4 percent inflation rate, but it’s still way above the Fed’s target.

In normal times, that could indeed call for an increase in the size of rate hikes. The trouble for the Fed is that it’s also facing a banking system that may already be cracking due to all of its rate increases from the last year, which came at the fastest pace in decades. The second- and thirdlargest bank failures in U.S. history have both come since Friday.

“The Fed is stuck between a rock and a hard place,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

He said the Fed has other tools to use besides rate increases. Among them: The Fed could adjust the speed at which it’s shrinking its massive trove of bond investments, an action that effectively tightens the screws on the financial system.

An easier Fed could give the banking system and economy more breathing room, but it could also give inflation more oxygen.

Stocks across the financial industry rose Tuesday, recovering some of their steep earlier drops. First Republic Bank jumped 27 percent after plunging 67.5 percent over the prior three days.

Some of the wildest action has been in the bond market, where the yield on the two-year Treasury plunged Monday by roughly half of a percent.

That’s a historic-size move for the bond market. Yields plummeted as investors piled into investments seen as safe and ratcheted back their expectations for future rate increases by the Fed.

The two-year yield climbed back to 4.21 percent from 4.02 percent late Monday, another huge move.

The 10-year yield jumped to 3.66 percent from 3.55 percent. It helps set rates for mortgages and other important loans.