What happened

The stock market is rising on Thursday, a strong end to an already great week, with the market closed for Good Friday. As of 11:30 a.m. EDT, the Dow Jones Industrial Average and S&P 500 benchmark indexes were both up by more than 1%.

The financial sector was a particularly strong point. The Financial Select Sector SPDR ETF (XLF 0.50%) was higher by 4.5%, and most big bank stocks were following suit. Citigroup (C 0.05%) and JPMorgan Chase (JPM 0.50%) had both risen by nearly 7%, and Bank of America (BAC 0.92%) had gained about 4.3% for the day.

Man with happy expression while looking at a laptop.

Image source: Getty Images.

So what

There are a few good reasons for the optimism among bank stock investors. For one, the news on the COVID-19 pandemic efforts continues to indicate that the U.S. might be nearing a turning point. New York City, the worst-hit area in the nation, has seen clear signs that the spread is starting to slow.

On the economic front, Fed Chair Jerome Powell said that the economic rebound could be "robust," and Treasury Secretary Steven Mnuchin said that the U.S. economy could reopen as soon as May, which is certainly at the more optimistic end of any recent projections. Plus, President Trump is reportedly planning to launch a second coronavirus task force to focus on the economy.

Another reason is the sharp rise in oil prices over the past few days. After bottoming out at less than $22 in late March, Brent crude has risen by more than 55% on optimism that OPEC could agree to production cuts in the face of dramatically reduced demand. Oil and gas companies have billions in loans with the big banks, and higher oil prices are good news for these businesses' ability to pay their debts.

Lastly, the Federal Reserve just announced a massive program designed to increase the availability of loans to small businesses and to boost liquidity in the financial markets. The unprecedented program includes a $600 billion "Main Street" business loan program, which allows small and medium-size companies access to low-interest loans with deferred interest and payments for a full year. And this is in addition to the $350 billion Paycheck Protection Program lending initiative that was included in the CARES Act.

Now what

Banking is an industry that is highly sensitive to recessions and economic downturns. A prolonged recession or a depression could lead to a surge of loan defaults and a collapse in demand for new loans.

The latest news indicates that not only could the U.S. avoid a worst-case scenario, but we may also be able to reopen the economy sooner than anyone thought. And it looks as if the Federal Reserve will truly do everything it can to make sure U.S. businesses survive the shutdown and will thrive when they can get back to business as usual. All of this is causing bank investors to breathe a big sigh of relief.