It's a day of deep risk-on in markets, with stocks posting strong gains, bonds and gold plunging as Treasury yields climbed, after Treasury Secretary Janet Yellen injected confidence into the banking system.

The Treasury Department is also reportedly considering options to temporarily guarantee deposits above and beyond the $250,000 FDIC limit.

Cues From Tuesday's Trading:

Increasing optimism in the banking system's stability prompted traders to reprice higher Fed interest rates down the road. Fed futures are now almost entirely pricing in a 25-basis-point hike tomorrow, with the terminal rate priced at 4.9% in May.

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The S&P 500 index briefly hit the 4,000 milestone. With today's performance of 1%, the S&P 500 has almost fully recovered the losses after Silicon Valley Bank's crisis.

The Dow Jones Industrial added 230 points, up 0.7%, while Nasdaq Composite gained more than 1% approaching month-to-date highs. The Russell 2000 index rose 1.7%. 

Analyst Color:

A geopolitical development could be one of the biggest catalysts for the equity market, according to fund manager Louis Navellier. If China can get Russia to agree to a ceasefire, stocks could stage a big relief rally, he said.

Navellier also sees Wednesday’s Fed decision as another important catalyst. He expects the Fed to announce a 0.25% hike and issue a dovish statement, given the 2-year Treasury note has collapsed from 5.08% to 3.83% and the 10-year Treasury note from 3.66% to 3.42%.

The fund manager said he expects to see some dovish words such as “data dependent,” “lower market rates” and “inflation cooling,” and potentially a reference to the stress in the banking system.

“Overall, Wednesday’s FOMC statement is anticipated to be a big deal!”

Major Equity ETFs Price Action on March 21, 2023 – Chart: Tradingview

Upcoming Economic Data:

The Federal Open Market Committee, the policy-setting arm of the Federal Reserve, is scheduled to start a two-day meeting on Tuesday. A decision, though, is expected only after the conclusion of the meeting on Wednesday.

The National Association Of Realtors released the existing home sales report. In February 2023, transactions climbed 14.5% to a seasonally adjusted annual rate of 4.58 million, halting a 12-month decline and recording the highest monthly percentage increase since July 2020. Economists were expecting a milder 5% gain on the month to 4.2 million. 

Stocks In Focus:

Top Analyst Calls

Commodities, Bonds, Other Global Equity Markets:

Crude oil continued to climb on Tuesday. The black gold added 2.4% to $69.4 a barrel.

Treasury yields rebounded, with the benchmark 10-year Treasury note yielding 3.60%, up 11 basis points. The two-year Note jumped nearly 20 basis points to 4.18%.

Gold was negatively impacted by rising Treasury yields and Fed hike expectations, and the precious metal retraced more than 2% to $1,930/oz, with the SPDR Gold Trust ETF (NYSE:GLD) down 2%. 

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Staff writer Piero Cingari updated this report midday Tuesday.