Despite Strong Performance on Friday, Wall Street Ends Last Week in the Red

Despite the strong performance of leading global stock indices on Friday, it was not enough to erase the losses from the previous four days, primarily due to investor doubts about the health of American regional banks, leading most indices to finish last week in the red.

On Friday, American stock indices had their best daily performance since January 6, with the Dow Jones and S&P rising by more than 1.5 percent, and the Nasdaq by 2 percent. The MSCI index of global stocks rose by 1.48 percent that day.

However, despite this, the Dow Jones index ended the week down 1.24 percent, at 33,674 points, and the S&P down 0.8 percent at 4,136 points, marking their worst weekly performance since March. The technology Nasdaq index managed to finish the week with a slight gain of 0.07 percent, at 12,235 points.

The stocks of regional American financial institutions were under the most pressure last week. Following the collapse of Silicon Valley and Signature banks in March, the collapse of First Republic over the previous weekend further shook investor confidence, especially amid continued tightening of monetary policy in the U.S.

The biggest losers were the shares of PacWest Bancorp, with a drop in stock price of approximately 60 percent, after news early in the week that management was considering strategic options, including a sale, due to a deteriorating financial situation.

The stock price of Western Alliance Bancorp also fell sharply, nearly 40 percent, although that bank denied reports that it was seeking a potential buyer. This has shaken the entire sector.

Mitigated Losses

In addition to concerns about regional banks, investors are cautious as the U.S. central bank raised key interest rates again on Wednesday, for the 10th consecutive meeting, by another 0.25 percentage points, to a range of 5 to 5.25 percent.

Until recently, investors had hoped this would be the last increase in interest rates in this cycle and that the Fed would start lowering rates by the end of the year. However, on Wednesday, Fed Chairman Jerome Powell indicated that further rate increases are possible if necessary, that inflation will not decrease so quickly, and that the central bank will not start lowering rates anytime soon.

American indices mitigated losses at the end of the week, achieving their best performance since January 6, thanks to a jump in Apple’s stock price of more than four percent due to better-than-expected earnings results and employment reports, which showed that 253,000 jobs were created in April, more than the 165,000 recorded in March, indicating the resilience of the American labor market to economic slowdown.

After JP Morgan downgraded the ratings of several regional bank stocks, they also recovered, with PacWest’s stock price jumping nearly 82 percent just that day.

However, Liz Young from SoFi does not believe that the price drop in the regional banking sector is over despite the recovery on Friday.

– When the entire news cycle began, the problem was originally related to the outflow of deposits. But now that pressure is no longer necessarily tied to deposits, but to the market value of the securities on their books. Therefore, I do not think this news cycle is necessarily over – Young noted.

On European exchanges, most major indices weakened last week, with the London FTSE index falling 1.16 percent to 7,778 points, and the Paris CAC down 0.78 percent to 7,432 points, while the Frankfurt DAX rose slightly by 0.56 percent to 15,961 points.