A group of regional bank stocks, which came under severe pressure this week stoking fears of a spreading banking crisis, rose sharply on Friday, at least partially assuaging those worries.
The rebound came as the market was also supported by data on hiring, which was deemed strong enough to allay fears of a recession without prompting the Federal Reserve to further tighten the screws on the economy.
PacWest rose over 80 percent after falling over 50 percent on Thursday. Western Alliance’s share price rose nearly 50 percent, also reversing some of the previous day’s decline.
The recovery rally helped lift the broader market, with the S&P 500 gaining 1.9 percent, its first day of gains in May.
“We thought banks had been unfairly penalized over the past week and even before that,” said Matt Peron, research director at Janus Henderson, an asset manager. “The rally makes sense because they were oversold.”
Still, the gains weren’t enough to reverse another tough week for the country’s mid-tier banks. The seizure and sale of First Republic to JPMorgan Chase on Monday were unveiled by JPMorgan chief executive Jamie Dimon and heralded the end of the crisis that began in March with the collapse of the Silicon Valley bank.
However, Mr Dimon added that there is “potentially another smaller” bank that could run into trouble. Shortly thereafter, shares of smaller lenders such as PacWest and Western Alliance came under renewed pressure as they tried to reassure investors that their deposit bases were stable and that market movements were unrelated to their financial health.
Despite Friday’s rebound, PacWest remained poised to end the week down nearly half its market value. Western Alliance ended about a quarter below where the week started. The S&P 500 ended the week 0.8 percent lower.
After trading ended on Friday, the Federal Reserve released data showing that commercial bank deposits in the United States fell slightly in the week ended April 26, falling to 17 from $17.18 trillion the week before .17 trillion US dollars fell. For domestically chartered banks, however, they ticked higher – to $15.96 trillion from $15.94 trillion previously. In both cases, the data showed that deposits had stabilized after falling much more sharply in March and early April.
Concerns over the fate of regional lenders were further eased by new data on Friday showing a resilient labor market, with a stronger-than-expected pace of hiring in April and workers still posting strong wage increases.
Despite the strong April read, downward revisions to data from earlier months show that the longer-term trend of a softening job market is ongoing and investors still expect Fed policymakers to pause on rate hikes at their next meeting in June put in
Elsewhere, oil prices rose, often a sign of improving global economic prospects. They, too, rallied higher after a sharp drop earlier in the week.
Another tailwind for the market came from Apple, which reported better-than-expected first-quarter earnings and helped push its share price nearly 5 percent higher on Friday. Because of the tech giant’s size, its movements impact the S&P 500 more than any other company in the index.
Federal Reserve Chair Jerome H. Powell said it was possible to slow the economy enough to contain inflation without plunging it into recession. Friday’s payroll data appears to support this notion of a so-called soft landing.
Still, some investors remain nervous 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 changing interest rate expectations, also rose 0.16 percentage points to 3.9 percent — a big move for an asset that normally changes hundredths of a percentage point every day, and a sign of it Investors believe interest rates could stay high for longer.
“The market seems vulnerable to a shock,” Mr Peron said. “We’ll be careful until we get past a break.”
Jeanna Smialek contributed the reporting.