U.S. stock market rallies after new inflation data

The U.S. stock market rallied on Tuesday after new inflation data increased the expectation of a modest interest rate hike by the central bank in the upcoming rate-setting meeting.

The Dow Jones ended the trading session at 32,155.40, gaining 336.26 points or 1.06 percent. The S&P 500 closed at 3,919.29, rising by 63.53 points or 1.65 percent. Meanwhile, Nasdaq concluded the trading day at 11,428.15, increasing by 239.31 points or 2.14 percent.

All primary S&P 500 sectors concluded the trading session higher, with the communication services sector being the best performer.

Financial stocks recouped some of their losses. The S&P 500 banking index rose by 2.6 percent after its steep 6.4 percent decline in the previous session. Meanwhile, the KBW Regional Banking index — which tracks publicly traded U.S. regional banks or thrifts — rose by 2.1 percent.

Shares of First Republic Bank rose by 26.98 percent to 39.63, while Western Alliance Bancorp saw a 14.36 percent increase to 29.87. Both regional banks closed significantly lower on the previous trading day, with First Bank losing over 70 percent of its share value.

Ride-hailing services apps Uber and Lyft saw five percent and 0.6 percent increases, respectively, after a court in California re-allowed the companies to treat drivers as independent contractors instead of employees.

On the other hand, United Airlines shares fell by 5.4 percent after it projected revenue loss for this quarter. Movie theater chain AMC Entertainment also lost 15 percent after its shareholders voted to convert preferred stock into common shares.

The newly released consumer price index for February showed an annual rate of six percent, a decline from the 6.4 percent rate in the previous month. On a month-over-month basis, consumer prices rose by 0.4 percent, lower than the 0.5 percent monthly increase in January.

Analysts said signs of cooling inflation had increased the likelihood of the Federal Reserve increasing interest rates by 25 basis points, a low increase compared with several rate hikes that the Fed had implemented last year. According to financial firm CME Group, a small portion of investors even predict no rate hike at all next week.

The market also projects that the federal funds rate will peak at around 4.7 percent by May, a significantly lower forecast than the 5.5 percent to 5.7 percent peak the market predicted earlier this month.

Recent bank failures to influence Fed's policy

Recent failures of Silicon Valley Bank (SVB) and Signature Bank will influence the Fed's rate policy, said analysts. Matthew Keator, a managing partner at wealth manager Keator Group, said the Fed might "back off" from its hawkish policy.

"Part of the stabilization today is folks feeling as if the Fed might back off from some of the hawkish expectations that followed Chairman Powell's comments last week," Keator said. "If the Fed isn't careful, they could create some unintended shocks to the system."

Financial authorities shut down SVB last Friday after it experienced a bank run — customers cumulatively took out $42 billion just on March 9. SVB shutdown was followed by the closure of Signature, a New York-based that served many crypto customers, on Sunday.

Those actions caused fears of a ripple effect in the financial sector, with stocks of regional and large banks plummeting on Monday. The U.S. government has since convinced the public that the country's banking system was "safe" and that it could contain the effects of the implosions.

Analysts pointed out that Fed's hawkish rate policy partially caused the failures. High-interest rates caused startups, a major part of the client base at both banks, to withdraw more cash due to difficulty in financing. These banks were unable to handle the surge of withdrawals.