US stocks extend rally buoyed by technology shares

The S&P 500 gained 0.6% — even with financials under pressure — while the tech-heavy Nasdaq 100 rose 0.9%, pushing further into a bull market. Treasuries were little changed and the dollar was weaker against major peers.

The gains come as market watchers digested a round of Fed commentary suggesting more monetary tightening was necessary, even after the collapse of three US banks earlier this month. Boston Fed President Susan Collins said tightening was needed. Richmond Fed President Thomas Barkin said the Fed can raise rates more if inflation risks persist. And Minneapolis Fed President Neel Kashkari said he’s committed to getting inflation back to 2% and that it’s not yet fully clear what impact the financial-system turmoil will have.

“With cracks in the banking system becoming apparent, the Fed’s job has become even harder,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Recession risk remains in focus given the Fed’s historical track record of struggling to tighten policy while easing the economy to a soft landing.”

President Joe Biden’s administration also called on regulators Thursday to tighten the rules for mid-sized banks in response to the recent bank failures. Stress in the financial sector has increased the chance of the Fed tipping the economy into a recession with its rate hikes. However, Collins echoed remarks by Fed Chair Jerome Powell last week that pain in the banking sector may be worth 25 basis points of tightening. Tighter credit conditions could remove the need for more hikes later, she said. Analysts have agreed, saying it could be the equivalent of a far more aggressive hike. 

“The plausible range is anything from nearly zero to 200bp or more in the event that stress were to broaden and deepen,” Krishna Guha, Evercore ISI head of central bank strategy, wrote. “We will all need to update as the data comes in and that updating could be quite rapid.”

Investors expect US rates to sit around 4.3% by the end of the year, around 70 basis points lower than the current level. However, several strategists have said markets are wrong to expect rate cuts this year. The labor market remains robust, though US unemployment claims ticked up for the first time in three weeks. And high inflation — as measured by the so-called PCE Core Deflator due Friday — is expected to have persisted last month.

Elsewhere in markets, oil rebounded, gold gained and Bitcoin traded around $28,000.