Despite Big Losses, Bank Stocks Are Rallying Hard‍

There may be some confusion surrounding Tuesday's big rally in stocks. Yes, the CPI showed that inflation moderated in February. However, that was largely expected.

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Regional banks have mostly received negative news over the past 24 hours. Following the failures of Silvergate Bank, Silicon Valley Bank, and Signature Bank, Moody's Investors Service changed its outlook to negative from stable for the U.S. banking system. Today, some of the most hard-hit names have staged a furious rally despite those challenges.

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So what explains the partial comeback? While we don't know exactly what's happening behind the scenes, history shows the phenomenon isn't uncommon. In the midst of steep losses, markets often post their biggest gains. 

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A former trader and the founder of the research firm CappThesis, Frank Cappelleri, has done quite a bit of research on this topic and has concluded that when markets post smaller one-day gains, rather than huge rallies, it usually appears that they are heading toward a more sustainable run higher. Last year-a miserable year for the markets-the S&P 500 was able to post gains of at least 1% for at least two straight trading days on 11 occasions during the year. "Those clusters of big gains were outnumbered by clusters of big losses," Mr. Cappelleri wrote in a note that appeared in the paper. There were 14 occasions when the broad index lost 1% consecutively.

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In summary, it is not necessarily clear that investors are feeling that the banking crisis is in the rearview mirror, as it is still ongoing in the market.