S&P, Nasdaq, Dow lower as focus moves back to rates from banks
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The major U.S. stock indexes traded in the red on Tuesday, weighed down by semiconductor and technology stocks, as growth felt the pinch while Wall Street mulled the likely interest rate policy amid a calmer banking scene.
The Nasdaq Composite (COMP.IND) declined 0.7%, the S&P 500 (SP500) fell 0.3%, and the Dow Jones Industrial Average (DJI) slipped 0.2%. 
"Sanity seems to prevail, at least so far this week, with no new contagion fears weighing on sentiment," said ING. "Realized volatility in rates remains elevated, with double-digit moves in basis point terms on the 2Y-10Y segment of main developed market curves on Monday. This is also reflected in still high implied swaption volatility, celebrating lower banking worries but dreading a return of inflation angst."
The 10-year Treasury yield (US10Y) gained 3 basis points to 3.56% and the 2-year yield (US2Y) was up 5 basis points at 4.06%.
The market is now divided on the outcome of the Federal Reserve's meeting in May. Fed funds futures are pricing in a near 50/50 chance between no hike and a 25-basis point increase.
"No banking contagion news allows rates to jump back but we doubt more than one Fed hike can be priced by the curve. This means the 2Y hovering around a 4% yield," ING said. 
"This level has proved a magnet since the SVB crisis and a decisive break below would require the curve to price more than the three 25-bp cuts we're forecasting for this year, and which the curve is currently pricing," it added. "This is far from impossible, but this would require data to catch up to the economic gloom in markets, or further bank contagion."
James Bullard, president of St. Louis Fed, said monetary policy can continue to put downward pressure on inflation, and at the same time "appropriate macroprudential policy can contain financial stress in the current environment." 
The Senate Banking Committee's hearing on recent bank failures wrapped up earlier in the day, in which FDIC Chairman Martin Gruenberg, Fed Vice Chairman Michael Barr and Treasury Undersecretary Nellie Liang agreed that rules should be strengthened to prevent bank failures.
Turning to economic data, the Conference Board's measure of March consumer confidence unexpectedly strengthened slightly. "We're surprised that the index rose, despite the SVB failure and subsequent chaos in markets," said Pantheon Macroeconomics' Kieran Clancy. "Respondents expect the fallout from bank failures to be short-lived. That is misguided; credit conditions are set to tighten significantly, which greatly raises the likelihood that the economy slips into recession later this year."
Meanwhile, wholesale inventories drifted up in February, while retail inventories moved higher. The S&P Case Shiller home price index fell for the seventh straight month.
Among active stocks, chip makers edged lower ahead of Micron Technology's (MU) earnings report, dragging both the S&P 500 and Nasdaq indexes.
McCormick (MKC) led gains on the S&P 500 after posting an earnings beat, while Walgreens (WBA) was the top gainer on the Dow after better-than-expected results. Among decliners, Lucid Motors (LCID) fell 7% as the EV maker is planning layoffs. 
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