Investing.com — The Dow closed higher Thursday, as banks racked up gains after the Federal Reserve’s stress test showed they were strong enough to weather a severe recession scenario.
The Dow Jones Industrial Average added 0.8%, or 269 points, the Nasdaq was flat, and the S&P 500 rose 0.4%.
Wells Fargo & Company (NYSE:WFC), JPMorgan Chase & Co (NYSE:JPM) and Goldman Sachs Group Inc (NYSE:GS) led the rally in banks as optimism in the sector was lifted after the Fed’s stress test on Wednesday showed that 23 of the biggest U.S. lenders would be able to weather a severe recession scenario.
Some on Wall Street, however, said while the results delivered a clean bill of health for major banks, doubts about the smaller regional banks persist following the recent banking turmoil.
“Of course, while the largest banking institutions in the country seemingly passed the exam with flying colors, concerns remain surrounding the broader ability of the banking sector, particularly mid-sized regionals, to weather a continued rising rate environment,” Stifel said in a note.
Concerns about a rising rate environment, meanwhile, were stoked further following data pointing to further signs of economic strength that sent Treasury yields sharply up on expectations for the Fed to resume rate hikes.
The final reading of first quarter gross domestic product, or GDP, jumped to 2% from a prior estimate of 1.3%, topping economists’ forecasts for 1.4%. Initial jobless claims, meanwhile, dropped by the most since 2021.
Atlanta Fed President Raphael Bostic, however, continued to signal that the Fed should remain on pause, saying it would be “wise” to keep rates steady at future meetings as inflation was likely to slow without additional tightening.
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