A group of regional bank stocks that have been under pressure this week rose on Friday, raising fears of an escalating banking crisis, at least partly easing those fears.
The recovery came as the market was also boosted by employment data which was seen as strong enough to ease concerns about a recession without prompting the Federal Reserve to tighten the screws on the economy further.
PacWest is up more than 80 percent, after falling more than 50 percent on Thursday. Western Alliance’s share price rose about 50 percent, also offsetting much of its decline the previous day.
A comfortable rally helped lift the broader market, with the S&P 500 up 1.9 percent, its first day of gains in May.
“We thought the banks were being unfairly punished over the last week, and even before that,” said Matt Peron, director of research at Janus Henderson, an asset manager. “The rally makes sense because it was oversold.”
However, the gains were not enough to reverse another stressful week for the country’s mid-sized banks. JPMorgan CEO Jamie Dimon filed for the forfeiture and sale of First Republic to JPMorgan Chase on Monday, bringing an end to a crisis that began in March with the collapse of Silicon Valley Bank.
However, Dimon added that “there may be another, smaller bank” to run into trouble. Shortly thereafter, a fresh bout of stress hampered stocks of smaller lenders such as PacWest and Western Alliance, which had tried to reassure investors that their deposit rules were stable and that market movements had nothing to do with their financial health.
Even with Friday’s rebound, PacWest remained close to ending the week having lost nearly half of its market value. The West Alliance finished nearly a quarter below the level where it started the week. The Standard & Poor’s 500 Index ended the week down 0.8 percent.
After trading ended on Friday, the Federal Reserve released data showing that deposits at commercial banks in the United States fell slightly in the week ended April 26, falling to $17.17 trillion from $17.18 trillion in the previous week. Despite this, banks leased domestically rose to $15.96 trillion from $15.94 trillion previously. Either way, the data showed that deposits have leveled off after significant declines in March and early April.
Concern about the fate of regional lenders was tempered by new data released on Friday showing a strong labor market, with the pace of new hires in April coming in stronger than expected and workers still notching high wage gains.
Despite the strong numbers for April, downward revisions to data from previous months show a continuation of the long-term trend of labor market slowdown, and investors still expect Fed policymakers to stop raising interest rates when they next meet in June.
Elsewhere, oil prices have risen, often as a reflection of a brighter outlook for the global economy. They also rebounded higher after dropping sharply earlier in the week.
Another market tailwind came from Apple, which reported better-than-expected first-quarter earnings, helping to push its share price nearly 5 percent higher on Friday. Given the tech giant’s size, its moves have more impact on the S&P 500 than any company in the index.
Jerome H. said: Powell, Chairman of the Federal Reserve, said it is possible to slow the economy enough to stop inflation without sending it into recession. Arguably, Friday’s employment data supports the idea of a so-called soft landing.
However, some investors remain on edge, even after Friday’s rebound. The strong data raised the possibility of a rate hike in June.
The two-year Treasury yield, which is sensitive to changes in interest rate expectations, also rose, rising 0.16 percentage point to 3.9 percent — a significant move for an asset that typically changes by hundreds of percentage points each day, and a sign that investors believe interest rates can Stay higher for longer.
“The market seems vulnerable to a shock,” Mr. Perron said. “We’ll be careful until we pause.”
Jenna Smyalek Contribute to the preparation of reports.
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