A group of regional bank stocks that came under severe pressure on Thursday, stoking fears of a spiraling banking crisis, surged on Friday, at least partially alleviating those worries.
The rebound came as the market was also bolstered by data on hiring deemed strong enough to soften concerns about a recession without prompting the Federal Reserve to tighten the screws on the economy further.
PacWest soared nearly 80 percent, after falling over 50 percent on Thursday. Western Alliance’s share price rose more than 30 percent, also recouping a chunk of its drop the day before.
The relief rally helped to lift the broader market, with the S&P 500 up 1.5 percent heading into the afternoon.
“We thought the banks were unfairly punished over the past week, and even before that,” said Matt Peron, the 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 bruising week for the nation’s midsize banks. The seizure and sale of First Republic to JPMorgan Chase on Monday was presented by Jamie Dimon, JPMorgan’s chief executive, ushering in 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 to run into trouble. Shortly thereafter, a fresh bout of pressure clobbered the stocks of smaller lenders like PacWest and Western Alliance, which tried to reassure investors that their deposit bases were stable and that the market moves were unrelated to their financial health.
Even with Friday’s bounce, PacWest remained set to end the week having lost nearly half its market value. Western Alliance traded a third below where it started the week. The S&P 500 is set to end the week roughly 1 percent lower.
Concern over the fate of the regional lenders was further alleviated by fresh data on Friday that showed a robust labor market, with the pace of new hiring in April coming in stronger than expected and workers still achieving elevated wage gains.
Despite the strong numbers for April, downward revisions to data from earlier months show the longer-term trend of a slowing labor market persisted, and investors still expect Fed policymakers to pause on raising interest rates when they next meet in June.
Nonetheless, some investors remain on edge even after Friday’s bounce.
“The market seems vulnerable to a shock,” said Mr. Peron. “We are going to be cautious until we get through a pause.”
