A group of regional bank shares that came under heavy pressure this week, stoking fears of a spiraling banking crisis, rose on Friday, at least partly easing those concerns.
The rally came as the market was also buoyed by hiring data that was seen as strong enough to ease concerns about a recession without the Federal Reserve further tightening the screws on the economy.
PacWest soared more than 80 percent, after falling more than 50 percent on Thursday. Western Alliance’s share price rose 50 percent, also recovering some of the previous day’s decline.
The relief rally helped lift the broader market, with the S&P 500 rising 1.9 percent, its first day of gains in May.
“We think the banks have been unfairly punished in the last week, and even before that,” said Matt Peron, director of research at Janus Henderson, an asset manager. “The rally makes sense because they were oversold.”
Still, the gains weren’t enough to reverse another painful week for the country’s midsize banks. First Republic’s seizure and sale to JPMorgan Chase on Monday was unveiled by Jamie Dimon, JPMorgan’s chief executive, marking the end of the crisis that began in March with the collapse of Silicon Valley Bank.
However, Mr Dimon added that “there may be another, smaller bank” that is in trouble. Soon after, a new wave of pressure hit the shares of smaller lenders such as PacWest and Western Alliance, which tried to reassure investors that their deposit bases were stable and that market movements were not related to their financial health.
Even with Friday’s bounce, PacWest remained poised to end the week having lost nearly half its market value. Western Alliance finished about a third below where it started the week. The S&P 500 ended the week down 0.8 percent.
Concerns about the fate of regional lenders were further eased by fresh data on Friday that showed a strong job market, with a stronger-than-expected pace of new hires in April and workers still getting big pay rises.
Despite the strong April numbers, downward revisions to data from prior months show that the long-term trend of a labor market slowdown persisted, and investors still expect Fed policymakers to pause on raising interest rates when they meet in June.
Elsewhere, oil prices rose, often reflecting a better outlook for the global economy. They, too, recovered from a sharp decline earlier in the week.
Jerome H. Powell, Chairman of the Federal Reserve, has said that it is possible to slow the economy enough to curb inflation without driving it into a recession. Friday’s jobs data arguably supports the notion of a so-called soft landing.
However, some investors remain nervous, even after Friday’s rebound.
“The market seems vulnerable to a shock,” Perón said. “We’re going to be cautious until we get past a lull.”
Another tailwind for the market came from Apple, which reported better-than-expected first-quarter earnings, helping push its share price nearly 5 percent higher on Friday. Due to the size of the tech giant, its moves have more of an effect on the S&P 500 than any company in the index.