Wall Street climbs as some beaten-down bank stocks recover
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Stocks ended broadly higher on Wall Street Tuesday, as some of the most breathtaking moves from a manic Monday reversed course.
The S&P 500 rose 1.7% after a report showed inflation is still high but heading lower. Stocks of smaller and mid-sized banks recovered some of their prior plunges caused by worries that customers could yank out all their cash. Treasury yields soared to trim their historic drops.
The Dow Jones Industrial Average rose 1.1%, while the Nasdaq composite added 2.1%. Gains in technology stocks, banks and communications services companies powered much of the rally.
A week ago, Wall Street was expecting Tuesday’s report on inflation to be the most important data of the week, if not month. The worry at the time was that inflation is staying stubbornly high, which could force the Federal Reserve to pick up the pace again on its hikes to interest rates.
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Such hikes can drive down inflation by slowing the economy, but they hurt prices for stocks, bonds and all kinds of other investments and raise the risk of a recession.
Traders work Feb. 1 on the floor at the New York Stock Exchange in New York.
Tuesday’s report showed that inflation at the consumer level was 6% in February, versus a year before. That matched economists’ expectations and was a slowdown from January’s 6.4% inflation rate, but it’s still way above the Fed’s target.
In normal times, that could indeed call for an increase in the size of rate hikes. The trouble for the Fed is that it’s also facing a banking system that may already be cracking due to all of its rate increases from the last year, which came at the fastest pace in decades. The second- and third-largest bank failures in U.S. history have both occurred since Friday.
An easier Fed could give the banking system and economy more breathing room, but it also could give inflation more oxygen.
Following the inflation data, bets are largely falling on the Fed sticking with an increase of 0.25 points later this month, according to data from CME Group.
Stocks across the financial industry rose Tuesday, recovering some of their steep earlier drops. First Republic Bank jumped 27% after plunging 67.5% over the prior three days. KeyCorp gained 6.9%, Zions Bancorp. rose 4.5% and Charles Schwab climbed 9.2%.
All told, the S&P 500 rose 64.80 points to 3,920.56, ending a three-day losing streak. The Dow added 336.26 points to 32,155.40, and the Nasdaq gained 239.31 points to 11,428.15.
The yield on the two-year Treasury plunged Monday by roughly half of a percentage point, a historic-sized move for the bond market. The two-year yield climbed back to 4.21% from 4.02% late Monday, another huge move. The 10-year yield jumped to 3.66% from 3.55%.
European markets also rebounded after a broad retreat in Asia.
How small businesses plan to prepare for a recession
How small businesses plan to prepare for a recession
As the U.S. economy falters and the specter of a possible recession looms large, small business owners may want to prepare for such an event before it hits to reduce the impact of a potential financial slowdown.
As Americans prepare for a possible economic downturn, altLINE compiled five strategies from news coverage and industry sources to help small businesses prepare for a recession, which is a period of economic decline that lasts more than a few months.
Various factors—including high interest rates, a decrease in consumer spending, asset bubbles, and deflation—can cause recessions. During these periods of economic decline, businesses may close, unemployment often rises, and consumer spending tends to decrease. Typically, government economic efforts during a recession seek to stabilize the economy and protect jobs.
By preparing for a recession before it hits, small business owners can increase the likelihood of their businesses surviving and thriving during an economic downturn. They can do so by taking these steps, even during difficult economic times.
Seeking alternative revenue
Creating multiple revenue streams is one of the top ways small businesses can prepare for a looming recession. Diversifying and expanding ways of producing revenue ensures a company’s success is not tied to one client or product.
Owners can consider expanding product or service offerings or expanding the business digitally to reach more people than just in the local region. Podcasts and e-books can present the unique skill sets and knowledge of a business in new ways that generate additional income. Keeping an open source of income such as a line of credit or an invoice factoring facility are another good strategy business owners can implement to help with cash flow shortages or unexpected expenses.
Saving when possible
Small business owners should keep several months’ worth of operating expenses in a savings account or emergency fund. Putting money aside when business is good is one of the easiest ways to build savings. Setting up automatic monthly transfers into a separate savings account is another way to grow the emergency fund.
Business owners should keep a close accounting of incoming and outgoing money and cut costs when possible. Paying off debt that carries high interest rates and strict repayment terms can save a lot of money in the long run. It allows small businesses to focus on collecting payments promptly and reducing outstanding debts to improve cash flow and increase financial stability. They can also look for ways to reduce operational costs such as renegotiating leases or supplier contracts to improve profitability and lower ongoing expenses.
Remaining adaptable
By remaining adaptable and open to pivoting and change, a business can increase its chances of success during a recession and better navigate an economic downturn.
Companies should avoid overcommitting to advance product orders. Ordering products too far in advance can limit a business’s ability to pivot. By ordering smaller quantities, a company can remain more flexible and better respond to changes in the market. However, there is a balance to be struck between protecting this type of flexibility and ensuring a stable supply chain for frequently used products.
Small businesses can consider shifting to different business plans and strategies that may perform better during a recession—for example, switching to products that are in higher demand, entering new markets, or changing the business model altogether. They can make good choices by staying informed about changes in consumer behavior, shifts in the competitive landscape, and new regulations.
Moving online—sometimes entirely
Moving a company online is one strategy to prepare for a potential recession, as it offers several benefits that can help a business weather an economic downturn. Operating a business online can reduce overhead costs associated with physical storefronts, such as rent and utilities, helping to improve profitability during a recession.
Establishing an online presence allows customers to interact with a business 24/7, increasing convenience and accessibility and helping to maintain revenue during a recession. An online business can also be scaled more quickly and cost-effectively than a physical business, allowing for growth and expansion with lower costs. Owners conducting business online can operate from anywhere with an internet connection, allowing for increased flexibility and freedom in running a business, even during a recession.
Creating employee communication plans
Companies should create an effective employee communication plan to maintain transparency and keep employees informed before a recession. Employers can prepare by determining which employees and departments are most affected by changes during a recession and prioritizing communication with them.
There are various ways to communicate with employees, including email, Slack, in-person meetings, or virtual company-wide meetings. The particular method utilized is not as important as establishing a clear company message consistent across all communication channels and keeping a regular communication schedule to ensure employees are informed and up-to-date.
Businesses that encourage employees to provide feedback and ask questions can increase transparency and foster a sense of engagement and trust. This can work effectively if there is a team or individual responsible for managing employee communication, ensuring that messages in both directions are delivered consistently and promptly.
This story originally appeared on altLINE and was produced and distributed in partnership with Stacker Studio.
