Stocks rally on debt ceiling optimism, regional banks

STORY: U.S. stocks rose sharply on Wednesday, fueled by optimism over a potential deal on the debt ceiling and a rebound in regional bank shares.

The Dow, S&P 500 and the Nasdaq all gained more than one percent, with the Nasdaq the highest at nearly 1.3%.

President Joe Biden and top House Republican Kevin McCarthy on Wednesday reiterated their determination to strike a deal soon to raise the $31.4 trillion federal debt ceiling and avoid what would be a catastrophic default.

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

The KBW regional bank index notched its biggest one-day percentage gain since Jan. 6, 2021, and the S&P 500 banks index surged for its biggest daily percentage gain of the year.

But Will Rhind, founder and CEO of GraniteShares ETFs, says regional banks aren’t out of the woods yet, citing a risk that their deposit bases could still “bleed-out” as customers park their money elsewhere in search of higher returns.

“The bigger-picture concern perhaps for market participants is simply that, with interest rates at 5%, investors can get a risk-free 5% or elevated interest rate by putting money directly at the Fed in the form of Treasury bills then by putting money on deposit at a regional bank for significantly less than those levels.”

Shares of Tesla jumped more than 4% a day after its annual shareholder meeting, during which CEO Elon Musk downplayed market speculation he may step down from the top job. He also touched upon two new mass-market models the company is developing, and reaffirmed that deliveries of its long-delayed Cybertruck would start this year.

Retailer Target rose more than 2.5% and T.J. Maxx parent TJX Companies closed nearly a percent higher.

While both forecast current-quarter profit below expectations, they both also beat estimates for the first quarter.