Wall Street ends higher, marking second winning week in a row
A late-afternoon turnaround on Wall Street left stocks higher Friday as the market shook off a weak start amid worries about banks on both sides of the Atlantic.
The Standard & Poor’s 500 rose 0.6% after slipping for most of the morning. The benchmark index marked its second straight weekly gain. The Dow Jones industrial average rose 0.4%. The Nasdaq composite ended 0.3% higher.
The upbeat close to the week came as markets have been turbulent on worries that banks are weakening under the pressure of much higher interest rates. That’s led to rising concerns about a possible recession and uncertainty about what the Federal Reserve and other central banks will do with interest rates.
“There are concerns out there about, obviously, a more severe bank crisis, both domestically and in Europe, and yet somehow markets are looking past that,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.
On Friday, much of the focus was on Deutsche Bank, whose stock tumbled 8.5% in Germany. This month, shares of and faith in Swiss bank Credit Suisse fell so much that regulators brokered a takeover of it by rival UBS.
Credit Suisse faced a relatively unique set of long-standing troubles. But the second- and third-largest U.S. bank failures in history this month have cast a harsher spotlight across the entire banking industry.
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Other big European banks also fell Friday, including a 5.5% drop for Germany’s Commerzbank, a 5.3% decline for France’s BNP Paribas and a 3.5% loss for UBS.
Bank stocks ended mixed on Wall Street. JPMorgan Chase fell 1.5%, while Bank of America rose 0.6%.
In the U.S., the hunt by investors has primarily been for banks that could face a debilitating exodus of customers, similar to what helped cause the failures of Silicon Valley Bank and Signature Bank.
Investors have zeroed in on smaller and midsize banks, the ones that aren’t “too-big-to-fail” banks and seen as greater risks.
First Republic Bank closed 1.4% lower. It’s down 90% for the year.
Janet L. Yellen addresses an American Bankers Assn. conference after the collapses of Silicon Valley Bank and Signature Bank.
Treasury Secretary Janet L. Yellen has said that in cases in which the government sees a risk to the overall system, it will guarantee deposits for bank customers, even those with more than the $250,000 insured by the Federal Deposit Insurance Corp. That’s what regulators did for both Silicon Valley Bank and Signature Bank.
But Yellen this week also stopped short of a blanket guarantee for all depositors at all banks.
Cash-short banks were still lining up this week to borrow money from the Fed. The Fed said Thursday that emergency lending to banks fell slightly in the last week — to $164 billion — but remained high.
A big worry is that all the pressure on banks will cause a pullback in lending to small and midsize businesses across the country. That, in turn, could lead to less hiring, a weaker economy and a higher potential for a recession that many economists already saw as likely.
Although the job market has remained remarkably solid, other parts of the economy have already begun to weaken under the weight of higher rates. On Friday, reports on the economy came in mixed. One showed orders for long-lasting manufactured goods were slower last month than economists expected.
Wall Street’s rally stalled after a stunning jobs report showed the U.S. economy created a third of a million more jobs last month than expected.
A second report, though, suggested the fastest uptick in business activity for almost a year. The preliminary report from S&P Global topped economists’ expectations.
Federal Reserve Chair Jerome H. Powell said worries about a pullback in lending helped push the Fed to raise rates by only a quarter of a percentage point this week, instead of a more aggressive half point, in its campaign to battle inflation.
Higher rates can undercut inflation by slowing the entire economy, but they raise the risk of a recession. They also hurt prices for stocks and other investments. For Silicon Valley Bank and other banks, that meant hits to the super-safe Treasury bonds they owned.
The Fed has raised its key overnight interest rate to a range of 4.75% to 5%, up from virtually zero at the start of last year. It’s hinted it may raise rates one more time before holding them there through the end of the year.
Traders are more skeptical, though. The rising possibility of a recession has them betting heavily that the Fed will have to cut interest rates as soon as this summer to release some of the pressure on banks and the economy.
Such speculation has added to an increased drive by investors to pile into anything seen as safe, which together have caused huge, sometimes violent swings in the bond market.
On Friday, yields fell further. The 10-year yield, which helps set rates for mortgages and other loans, fell to 3.38% from 3.42% late Thursday. It was above 4% earlier this month.
The drop has been even more dramatic for the two-year Treasury yield, which more closely tracks expectations for the Fed. It sank to 3.77% from 3.83% late Thursday and from more than 5% earlier this month.
All told, the S&P 500 rose 22.27 points to 3,970.99, the Dow climbed 132.28 points to 32,237.53 and the Nasdaq gained 36.56 points to close at 11,823.96.
Small company stocks outgained the broader market. The Russell 2000 index rose 14.63 points, or 0.9%, to 1,734.92.
AP writers Elaine Kurtenbach, Matt Ott and Paul Wiseman contributed to this report.
