U.S. stocks extend rally in final hour of trade, powered by tech stocks and calm in banking sector

What’s driving markets

Appetite for risk was evident on Wednesday as investors were more relaxed about the health of the bank sector and the prospects for the path of interest rates. U.S. stock indexes were sharply higher in the afternoon trade with the S&P 500 and Nasdaq up more than 1% each.

Semiconductor and mega-cap technology stocks contributed largely to the advances. The S&P 500 information technology sector
SP500.45,
+2.18%
gained 2.2%, while the consumer discretionary sector
SP500.50,
+1.13%
jumped 1.8%.

For the quarter, the information technology sector has risen 17.7%, on pace for its best quarter since the second quarter of 2020, according to Dow Jones Market Data.

See: Tech stocks back as a haven — here’s why strategists say it can’t last 

Shares of Micron Technology Inc.
MU,
+8.16%
gaining 8.6% on Wednesday after the company reported its largest quarterly loss on record due to an inventory write-down of more than $1.4 billion on Tuesday, but its shares held up as executives suggested the memory market may be reaching a bottom.

German microchip maker Infineon Technologies
IFX,
+6.90%
shares also went up nearly 7% as it upgraded its 2023 view, citing “resilient business dynamics in its core automotive and industrial segments.”

“It suggests that perhaps we’re still seeing businesses willing to spend on on technology and other productivity tools,” said Tom Hainlin, global investment strategist at U.S. Bank Wealth Management.

Strength in China-focused technology stocks was also helping the mood after traders took news of entrepreneur Jack Ma’s re-emergence and Alibaba’s
BABA,
+1.71%
restructuring as a sign of Beijing easing its crackdown on the sector.

See: International stocks outperform, decouple from U.S. equities by ‘unusual degree’

Regional banks also rose with shares of the SPDR S&P Regional Banking ETF
KRE,
+1.20%,
which covers the regional banks segment of the broader S&P 500 index, rose 0.5%. The S&P 500 financials sector gained 1.4% on Wednesday.

“We are in the middle of what we call a market chop phase, and we frame it by roughly in terms of prices of the S&P 500 at between 3,800 and 4,200, and we’re right in the middle of there. We see volatility in between those two prices,” Hainlin said in a call.

“As we get into April and you start to get first quarter earnings results from companies, that will give us some clues perhaps as to the direction of markets coming out of this chop area,” according to Hainlin. “We’ll start to see if companies change their outlooks for the for the year, if they’re still spending on technology and productivity, and what they’re seeing in terms of consumer demand.”

The 2-year Treasury yield
TMUBMUSD02Y,
4.096%,
which is particularly sensitive to monetary policy, was trading around 4.06% on Wednesday. It was above 5% three weeks ago but plunged below 3.6% last Friday when the market feared banking sector stress would hit economic activity and encourage the Federal Reserve to trim interest rates more quickly that previously thought.

“While the Fed could respond by cutting policy rates, with inflation still elevated, an aggressive Fed response may be delayed,” said Seema Shah, chief global strategist at Principal Asset Management. “Even then, by the time the Fed pivots, historically, the damage is usually done, and risk assets continue to struggle even as rates fall.”

“Economic activity has been resilient, and unemployment sits near historic lows, so it’s possible markets could shrug off any additional turmoil during this hiking cycle.”

See: ‘One or done’ scenarios seem likely for the Fed, economists say

The CBOE VIX index
VIX,
-3.81%,
a gauge of expected equity market volatility, has dropped below its long run average of 20, a sign that traders are much calmer than of late.

Tom Lee, head of research at Fundstrat, noted that VIX futures were now back in contango, a more normal structure where longer-term contracts are priced higher.

“This normalization of spread is often a sign investors see the worst of the crisis behind,” said Lee. “That is generally a constructive sign and is certainly counter to the general gloom of investors post-SVB failure. This ultimately becomes an important point. If investors are gloomy and expect a financial crisis to follow, but this doesn’t happen, this means sentiment and positioning will be key. In many ways, this could be the setup now,” Lee added.

In U.S. economic data, pending-home sales rose 0.8% in February, up for the third month in a row, according to the monthly index released Wednesday by the National Association of Realtors (NAR). Pending home sales reflect transactions where the contract has been signed for an existing-home sale, but the sale has not yet closed. 

Companies in focus

• Lululemon Athletica Inc.
  LULU,
  +13.06%’s
  stock vaulted 13.1% Wednesday after the clothing retailer reported quarterly results that topped analyst revenue and earnings estimates, and offered strong full-year revenue guidance.

• Lucid Group Inc.
  LCID,
  +1.85%
  shares went up 1.2% after the electric-vehicle maker disclosed Tuesday that it plans to lay off roughly 1,300 employees.

• Shares of Minnesota-based Stratasys Ltd.
  SSYS,
  +13.75%
   shot up 13.4% Wednesday, after Israel-based Nano Dimension Ltd.
  NNDM,
  +1.37%
  said it increased its bid to buy the fellow 3D printer maker to $19.55 a share.

• First Republic Bank
  FRC,
  +6.07%
   shares were up 4.6%, leading S&P 500 gainers.

• Affirm Holdings Inc. shares
  AFRM,
  +10.67%
  jumped 11.2% Wednesday, rebounding after they sold off Tuesday in the wake of Apple Inc.’s 
  AAPL,
  +2.06%
  announcement that it had finally introduced its buy-now-pay-later service, called “Apple Pay Later.”

— Jamie Chisholm contributed to this article