Stocks closed sharply higher yesterday led by the Nasdaq with 2.48%, followed by the S&P with 1.76%, and the Dow with 1.17%.

The markets are on pace for solid weekly gains.

Last week's sharp sell-off following SVB's collapse, and fears of contagion, have so far proven to be overdone.

For one, the big banks are in strong financial shape. And the number of smaller and mid-sized banks flagged for trouble seem relatively few compared to the size and depth of the financial system. The common theme to the current situation seems to be a lack of liquidity for some due to overly large investments into long-dated Treasuries. Arguably, the safest investment on the planet.

Granted, the people running those banks made poor decisions as they did not adequately plan for what they would do if/when interest rates went up, business activity slowed, and depositors needed access to their funds. But that's quite different than the sub-prime mortgage crisis and S&L crisis where banks were saddled with risky assets.

On Wednesday, Swiss bank Credit Suisse fell to all-time lows after reports that their largest investor could not provide any additional funding (due to regulatory complications). But Switzerland's central bank said they would provide support via added liquidity. And on Thursday, CS took them up on their offer and tapped into a $54 billion loan, relieving their liquidity issue.

Here in the states, First Republic Bank (one of the banks on Moody's 'review' list), got some liquidity relief as well after a group of some of the country's biggest banks (including JPMorgan Chase, Citigroup, and Bank of America, to name a few -- there were 11 in all), provided $30 billion in funding to help them out.

This is not the last of the banking story. But it's looking like we are past the worst of it.

Wednesday's better than expected PPI report, which showed inflation moderating much more than expected, was muted, as banking concerns dominated trading. But yesterday's sharp rally appears to be not just relief over the banking situation, but big relief that inflation continues to ease, which is lending hope that the Fed might soon be done raising interest rates.
The Fed is still expected to raise rates by another 25 basis points next week. But expectations for how high the terminal rate may go have recently come down. Either way, it's clear we are nearing the end of the rate hike cycle, and that's bullish for stocks.

In other news, yesterday's Housing Starts and Permits report showed Starts at 1.450 million units (annualized) vs. last month's upwardly revised 1.321M and views for 1.315M. Permits came in at 1.524M vs. last month's 1.339M and views for 1.340M.

The Philadelphia Fed Manufacturing Index improved to -23.2 from last month's -24.3. Although, it missed expectations for an even larger improvement of -15.8.

And Weekly Jobless Claims fell more than expected, declining by -20,000 to 192K vs. the consensus for 205M.

Today we'll get another look at the economy with Industrial Production, Leading Indicators, and the Consumer Sentiment report.

It's also Quadruple Witching, which means it's expiration day for index futures, stock futures, index options, and stock options.

It's been a wild week so far. But if all goes well, the week should end on a positive note with a degree of optimism. A night and day difference from last week.

Best,