Stocks rise for first 2-day rally since banking crisis began

Stocks rallied Tuesday, led by the banks most beaten down by the industry’s crisis, and some of Wall Street’s fear washed out on hopes the U.S. government will offer more help if needed.

The S&P 500 jumped 1.3% to lock in its first back-to-back gain since Silicon Valley Bank’s rapid failure began two weeks ago. The Dow Jones Industrial Average rose 316 points, or 1%, while the Nasdaq composite jumped 1.6%.

Markets around the world have pinballed sharply this month on worries the banking system may be cracking under the pressure of the fastest set of hikes to interest rates in decades. This week’s rally now runs into a huge test: On Wednesday afternoon, the Federal Reserve will announce what’s largely expected to be its latest increase to rates.

Tuesday’s strength for stocks came after Treasury Secretary Janet Yellen told a bankers’ group more government assistance “could be warranted” if risks arise that could bring down the system. That could mean making sure customers at a weakened bank get all their money, even those with more than the $250,000 limit insured by the Federal Deposit Insurance Corp.

“Janet Yellen coming out and saying should other deposits need to be protected, they’re willing and able to do that, I think that’s a very strong statement,” said Mary Ann Bartels, chief investment strategist at Sanctuary Wealth. “And so markets have been able to calm down.”

Earlier this month, the U.S. government said it would make all depositors at Silicon Valley Bank and Signature Bank whole. They were the secondand third-largest U.S. bank failures in history.

Those banks had struggled as depositors rushed to pull their money out en masse. Such runs can topple a bank, and investors have since been hunting for the next one that could fall. Much focus has been on First Republic Bank, which shares some similar traits with Silicon Valley Bank, and its stock had lost 90% for the month through Monday.

It jumped 29.5% Tuesday. Other smaller and mid-sized banks also rallied, including a 9.1% climb for Comerica and a 9.3% jump for Keycorp.

Hopes for the banking industry began to turn over the weekend after regulators pushed together two huge Swiss banks. Shares of both banks rose Tuesday in Switzerland, including a 12.1% jump for acquirer UBS. Credit Suisse, meanwhile, rose 7.3% after tumbling a day earlier.

Credit Suisse had longstanding problems that were relatively unique, but all banks on both sides of the Atlantic have the shared challenge of navigating a world with much higher interest rates than a year earlier.

Central banks have jacked up rates at a blistering pace in hopes of getting high inflation under control. But such moves act like huge hammers with little nuance. They try to bring down inflation by slowing the entire economy.