A group of regional bank stocks that came under severe pressure this week, stoking fears of a spiraling banking crisis, surged on Friday, at least partly alleviating those worries.
The rebound came as the market was also bolstered by data on hiring that was deemed strong enough to soften concerns about a recession without prompting the Federal Reserve to tighten the screws on the economy further.
PacWest soared over 80 percent, after falling over 50 percent on Thursday. Western Alliance’s share price rose almost 50 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 1.9 percent, its first day of gains in May.
“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 ended roughly a quarter below where it started the week. The S&P 500 ended the week 0.8 percent lower.
After trading ended on Friday, the Federal Reserve released data showing that deposits at commercial banks in the United States declined slightly in the week that ended April 26, falling to $17.17 trillion from $17.18 trillion in the week before. At domestically chartered banks, though, they ticked higher — to $15.96 trillion from $15.94 trillion previously. In either case, the data showed deposits had stabilized following much more sizable declines in March and early April.
Concern over the fate of the regional lenders was further relieved 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.
Elsewhere, oil prices rose, often a reflection of a brighter outlook for the global economy. They, too, bounced higher following a sharp decline earlier in the week.
A further tailwind for the market came from Apple, which reported better-than-expected profits for the first quarter, helping push its share price nearly 5 percent higher on Friday. Because of the size of the tech behemoth, its moves have more of an effect on the S&P 500 than any company in the index.
Jerome H. Powell, the Federal Reserve chair, has said that it is possible to slow the economy enough to stem inflation without tipping it into recession. Arguably, Friday’s employment data supports that notion of a so-called soft landing.
Nonetheless, some investors remain on edge, even after Friday’s bounce. The strong data nudged higher the possibility of a rate increase in June.
The two-year Treasury yield, which is sensitive to changing interest-rate expectations, also rose, climbing 0.16 percentage points to 3.9 percent — a big move for an asset that typically changes by hundredths of a percentage point each day, and a sign that investors think interest rates could stay higher for longer.
“The market seems vulnerable to a shock,” said Mr. Peron. “We are going to be cautious until we get through a pause.”
Jeanna Smialek contributed reporting.