Stocks rose higher on Tuesday as investors become more optimistic towards the financial sector's outlook. The Dow Jones Industrial Average added over 300 points, while the S&P 500 Index and Nasdaq Composite rose 1.3% and 1.6%, respectively.

Here's how the market settled on Tuesday:

S&P 500 Index (SPY  ): +1.30% or +51.30 points to 4,002.87

Dow Jones Industrial Average (DIA  ): +0.98% or +316.02 points to 32,560.60

Nasdaq Composite Index (QQQ  ): +1.58% or +184.57 points to 11,860.11

Tuesday marks the start of the Federal Reserve's two-day policy setting meeting, with the central bank's decision due out Wednesday afternoon. Policymakers face a difficult decision whether to raise interest rates again to help curb high level of inflation or to pause to help support the banking sector.

Prior to the collapse of Silicon Valley Bank, the Fed was expected to deliver another hike as high as 50 basis points as economic reports pointed towards a still resilient economy. However, the banking sector turmoil has many market participants forecasting a smaller 25 basis point hike, or none at all.

Last week, the European Central Bank surprised markets by issuing a 50 basis point rate hike despite signs of pressure on Swiss lender Credit Suisse, as policymakers said they remain committed to curbing inflation while still keeping on eye on the banking sector.

Since then, Credit Suisse has been purchased by UBS (UBS  ) and U.S. regional banks have gotten a boost of confidence after a group of large banks pledged to deposit $30 billion into battered First Republic Bank (FRC  ).

On Tuesday, Treasury Secretary Janet Yellen said that the U.S. government could guarantee more deposits if necessary if the banking sector crisis deepens further.

"The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system," Yellen said in prepared remarks for a speech to the American Bankers Association on Tuesday. "And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."

Beyond the banking sector, U.S. housing data on Tuesday showed sales of previously owned homes rising 14.5% in February over January to an annualized rate of 4.58 million units, according to the National Association of Realtors. This was the first monthly gain in 12 months and the largest increase since July 2020. However, sales were down 22.6% compared to February 2022.

Looking ahead, market participants will react to the Fed's next policy decision as well as remarks from Fed Chair Jerome Powell Wednesday afternoon.