Wall Street has struggled with two duelling narratives for the past month. The first: US regional banks are totally fine and the Fed is going to have to raise rates further in the face of sticky inflation. The second: More banks are about to collapse; in which case the Fed will aggressively cut rates later this year.

Traders don’t seem any closer to gaining clarity on which outlook is more accurate, and it’s impossible for both to be correct. A big stock bounce for PacWest Bancorp injected a note of optimism today, tempered by the caveat that the shares had cratered 75% this year through last week.

McWilliams said the upheaval at Regional Lenders has gone beyond being merely idiosyncratic. “At this point, we’ve created a crisis of confidence in the banking system,” she said.

JPMorgan’s David Lebovitz nodded to the uncertainty around the path ahead for regional lenders. “I’m not sure we’re out of the woods. But I think the big booms have been heard.”

“We’re in this weird, nebulous state today where it just doesn’t seem to us that investors broadly are accurately pricing the risks around monetary policy that we see on the horizon,” Lebovitz said.

“There’s been this tension within the markets really since last summer of people sort of speculating that there’s going to be this big economic contraction that’s going to clear the air and allow us see the light at the end of the tunnel,” said Michael Purves of Tallbacken Capital Advisors. “The problem is, we don’t get that.”

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