Dow jumps on hopes of a debt deal, while bank shares rise


Stocks rose sharply on Wednesday, fueled by optimism over a potential deal on the $31.4 trillion debt ceiling and as a rebound in regional bank shares eased concerns about an escalation in the sector’s troubles.

President Joe Biden and top congressional Republican Kevin McCarthy on Wednesday reiterated their determination to strike a deal soon to raise the federal debt ceiling and avoid an economically catastrophic default.

If an agreement is not reached by June 1, the US Treasury has said it could begin to run out of funds to pay the government’s bills, potentially igniting a recession.

The Dow Jones Industrial Average jumped 408.63 points, or 1.2%, to 33,420.77, the Nasdaq climbed 1.3% and the S&P 500 was up 1.2%.

A jump in regional bank shares lifted sentiment, led by a surge in Western Alliance Bancorp a day after the bank said deposits grew by more than $2 billion in the quarter ended May 12.

“It is optimism over the debt ceiling. It is continued optimism the banking crisis is in the rear-view mirror. Every day we go without a new problem, the closer we get to maybe putting it behind us,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, NJ.

Shares of regional banks rose amid optimism about a potential breakthrough in the deadlock over the nation's debt limit.
Shares of regional banks rose amid optimism about a potential breakthrough in the deadlock over the nation’s debt limit.

“Definitely the catalyst is when you get both Biden and McCarthy to say that we are close the assumption is they probably will go with some kind of agreement.”

Also providing support was a 4.4% advance in Tesla shares after its annual shareholder meeting on Tuesday.

Top boss Elon Musk played down market rumors that he may step down as CEO of Tesla, touched upon two new mass-market models the company is developing, and reaffirmed that deliveries of its long-delayed Cybertruck pickup would start this year.

Regional banks rose, led by a 10% rise in Western Alliance Bancorp as the lender’s deposit growth exceeded $2 billion and brokerage Bank of America Global Research resumed coverage of the bank with a “buy” rating.

However, trading in the last few sessions has been in a limited range as investors await clarity on a resolution in the debt-ceiling debate, economic data and the path of the Federal Reserve’s monetary policy.

“If you look at the S&P 500, it’s been within just a 10 point range for six straight weeks, no one wants to be confident enough to go bullish or negative in a big way before this deal,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

“It’s kind of a sideways waiting period. Most of the economic data we got this week has been pretty close to what was expected and so none of it’s really moved markets either.”

Retailers Target and TJX forecast current-quarter profit below expectations despite beating estimates for the first quarter.

Shares of Target were up 2.6%, while the T.J. Maxx parent edged up 0.9%.

“The US consumer is the wild card. They’re not completely withdrawn from the economy, that is hopeful for bullish economists,” said Keith Buchanan, portfolio manager at GLOBALT Investments.

Home Depot and a reading on April retail sales that missed expectations highlighted the impact of higher prices and interest rates on consumers.

Walmart’s shares edged 0.2% lower ahead of earnings on Thursday.

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