Still, major stock indexes wavered for most of the day and finished mixed. The Dow Jones Industrial fell 0.7%, or 221.82 points, while the S&P 500 edged down 0.2%. The technology-heavy Nasdaq Composite eked out a 0.2% gain. 

The quiet trading day continued a weekslong slow dance between markets and policy makers, as investors have parsed regulators’ ability to contain banking-sector stress while curbing price increases for housing, services and more. 

Thursday’s indicators of slowing inflation, which arrived a day after federal data showed consumer prices eased in April for the 10th straight month, would seem to provide a springboard for stocks to take off and sustain gains. 

“But there’s no rest for the weary until that debt ceiling gets resolved,” said

Karyn Cavanaugh,
chief investment officer at Carolinas Wealth Management.

Amid ongoing talks in Washington on how the government can pay its bills and avoid a default, many investors have kept money on the sidelines of stock markets, instead earning income from Treasurys and money-market funds. Ms. Cavanaugh said the caution has held stock prices back despite corporate earnings in the first quarter largely exceeding Wall Street’s expectations. 

“I try to tell investors, ‘Don’t try to Washington-proof your portfolio,’” she said. “Let them play in their playpen.” 

On Thursday, regional banks continued showing signs of strain. Shares of
PacWest Bancorp

fell 23%, dragging down other regional banks, after the Los Angeles-based lender disclosed another round of deposit flight. 

The KBW Nasdaq Regional Banking Index fell about 2.4% and shares of other regional banks including Zions, Comerica and Bank of Hawaii slid between 4.5% and 10%. Shares of
JPMorgan Chase
edged down 0.3%.
Bank of America
ticked 0.3% higher.

“Some fear still surrounds the banking system,” said Thorne Perkin, president of multifamily office Papamarkou Wellner Perkin. 

Other individual stocks also added downward pressure. Disney was the Dow’s worst performer, according to
FactSet,

trading 8.7% lower after the company reported that its Disney+ streaming service lost U.S. subscribers for the first time. Covid-era darling Peloton fell 8.9%, hitting a record low, after the company announced a recall affecting roughly 2.2 million bikes.

Most sectors of the economy have shown resilience in recent months, driving wage increases and pulling the unemployment rate to its lowest level since 1969. China’s re-emergence from strict lockdowns has also boosted demand for energy and consumer goods. 

Shares in
Tapestry,
the parent of brands including Coach and Kate Spade, gained 8.3% after executives raised their earnings forecast and said luxury shoppers in Asia are spending big as the region reopens after the pandemic.
Robinhood Markets
shares rose about 6.4% after the online broker reported better-than-expected revenue and said it would launch 24-hour trading for select stocks and ETFs.

Much of Big Tech also continued this year’s upward climb after a rough 2022.
Netflix
rallied 2.8%, good enough for a seven-day winning streak, while
Facebook
owner Meta Platforms gained 1.2%.
Amazon
shares traded 1.8% higher and Google parent
Alphabet

rose 4.3%, completing its best two-day stretch since November, according to Dow Jones Market Data. 

Mr. Perkin, whose firm focuses on family offices, said he views such blue-chip tech stocks as an economic bellwether and believes the odds of a severe recession are shrinking. 

“Soft landing is very much our base case,” he said. “In general, companies have been doing pretty well. It hasn’t been an easy path.”

Write to David Uberti at [email protected]