Wall Street is stabilizing as banks are stabilizing

The S&P 500 rose 1.87, or less than 0.1%, to 4,138.12, coming off its worst week in nearly two months. The Dow Jones Industrial Average fell 55.69 points, or 0.2%, to 33,618.69, while the Nasdaq index added 21.50, or 0.2%, to 12,256.92.

In addition to a strong reading on US jobs, which allayed concerns about a possible recession but increased concerns about high inflation, last week was dominated by fears for smaller and medium-sized banks.

PacWest Bancorp rose 3.6% to recover part of last week’s 43% decline. It said Friday night it is cutting its dividend to help it build its financial strength. Several other smaller and medium-sized banks also rose, including a 0.6% increase for Western Alliance Bancorp.

They are under intense pressure as Wall Street looks for the next weak link after three US bank failures since March. Burdened by much higher interest rates, smaller and medium-sized banks try to reassure Wall Street that their deposits are safe and not at risk of a sudden exodus, similar to the runs that brought down Silicon Valley Bank and others.

The bigger concern for the markets is that any unrest could lead to banks pulling back on lending. That, in turn, could increase the risk of a recession that many investors already consider very likely.

A report from the Federal Reserve on Monday showed that many banks tightened their lending standards during the first three months of the year. Not only that, the research suggested that banks generally expect to raise their standards over the course of 2023. One of the reasons some smaller and medium-sized banks gave for the forecast was that they wanted to take on less risk and were concerned about deposit outflows.

On Monday on Wall Street, the shares of companies that posted worse-than-expected results in the last quarter were depressed.

Tyson Foods plummeted 16.4% after reporting a loss, rather than the profit analysts had predicted. Turnover also fell short of expectations.

So far this season, the trend for data reporting has been to beat analysts’ forecasts. Apple was last week’s high, and its better-than-expected report helped the market immensely, as its stock is the largest on Wall Street and has the most weight in the S&P 500 and other indices.

Six Flags Entertainment rose 18.6% on Monday after it reported a loss that was not as bad as analysts had expected. It also said attendance was improving.