The financial sector has been churning in rough water since the shocking collapse of Silicon Valley Bank in March.

Now, it appears that two factions on Wall Street, fear-motivated short-sellers and value-based fundamental investors, are locked in a volatile battle over where the sector's stock prices should settle.

A look back: Last week was rough on US regional banks — shares of mid-sized lenders got crushed as the sale of First Republic Bank and other news triggered fears that the crisis in the sector was far from over.

PacWest shares lost half their value on Thursday after the California-based lender said it was exploring all strategic options (that means "looking for help" in Wall Street speak). Shares of Arizona's Western Alliance finished down 39% even after the company denounced a Financial Times report claiming it was considering a sale. Utah's Zions and Texas' Comerica also toppled more 12%.

But a sudden rebound jerked stocks higher on Friday; PacWest skyrocketed a staggering 82%. The momentum lasted through the weekend: Shares of First Republic closed 13% higher on Monday. Western Alliance and Zions were also up for the day — they're still trading at bargain-basement prices, down 54% and 51% this year, respectively. But they're definitely on a roller-coaster ride.

So what happened?

Meme stock-ing: Some analysts are blaming the wild swings on skittish investors trading on fear and momentum instead of on fundamental values.

"We believe regional banks are suffering from a GameStop-like moment where misinformation circulating on social media is fueling stock price declines that threaten funding and solvency," Jaret Seiberg, financial services analyst at TD Cowen Washington Research Group, wrote in a note to clients on Thursday.

The Biden administration has pointed fingers at short-sellers who bet against the banks and profited when they fell. White House Press Secretary Karine Jean-Pierre told reporters during Thursday's press briefing that the administration is "going to closely monitor the market developments, including the short selling pressures...on healthy banks."

Securities and Exchange Commission Chair Gary Gensler said in a statement that his agency is focused on finding "any form of misconduct" that threatens investors and capital markets.

Value first: Meme-stockification could be the reason that investors dumped these shares, but strong fundamentals are the reason they've been able to rebound quickly. No one is going to confuse the regional banks with JPMorgan anytime soon — but they're not Silicon Valley Bank or even First Republic, either: deposits are steady, and their earnings reports showed promise.

Bank insiders see this and have been buying up shares of regional lenders, according to a report by Timothy Coffey, an analyst at Janney Montgomery Scott.

According to Coffey's analysis, 53 banking insiders across 18 financial institutions have purchased 334,000 shares worth more than $6 million since March 10, when SVB collapsed.

"Insider purchases of their own stock can be a bullish indicator," wrote Coffey. "In our opinion, these purchases during extreme market volatility should be interpreted as signs of strength and applauded."

Investors pay close attention when executives purchase shares of their own company, typically considering it a vote of confidence.

JPMorgan analyst Steven Alexopoulos is also optimistic about the future of regional banking stocks. In a note on Friday he upgraded Western Alliance and Comerica banks to overweight from neutral, and upgraded Zion Bancorp to overweight from underweight.

First-quarter earnings for regional banks weren't as bad as analysts had feared, he wrote, and "with sentiment this negative, in our view it won't take much to see a significant intermediate-term favorable re-rating of regional bank stocks."

Alexopoulos said his team sees the potential for big regulatory changes including increased FDIC insurance levels, a ban on short-selling, and a Fed pivot away from raising interest rates. Those are all good things for regional banks.

"In the meantime, we see the favorable updates coming from select banks that deposit balances have remained stable (or increased) helping to counterbalance very negative sentiment," he said. "For investors looking to rebalance portfolios, many high quality banks look attractive."

What comes next: A surge of further bank failures is highly unlikely, but that doesn't mean the financial sector is going to thrive, either. Banks will have to hike their interest rate payouts to attract wary depositors, said Simeon Hyman, global investment strategist at ProShares. That will limit their profitability.

Warren Buffett also seeded some doubt during his annual Berkshire Hathaway shareholders' meeting at the weekend. The Oracle of Omaha said he remains cautious about holding bank stocks and that he has reduced his own exposure to the sector. "The incentives in bank regulation are so messed up and so many people have an interest in having them messed up," he said "It's totally crazy."

It's not just regional lenders; large cap banks are feeling the pain too. Since March 9, the day before Silicon Valley Bank's fall, the S&P 500 is down by about 3.3%. The S&P 500 financial sector, however, is down more than 12% over the same period.

Credit crunch?

Last year was bad for credit on all counts as Covid-zero policies in China, Russia's war on Ukraine and the associated energy crisis and high inflation led to turbulent markets, pushed up borrowing rates and slowed the global economy.

Economists were hoping that this year would bring better news, but instead 2023 brought the collapse of three US regional banks and a subsequent lending squeeze. Bank failures can make borrowing harder, which can curb spending and weigh on economic activity.

The Federal Reserve's quarterly Senior Loan Officer Opinion Survey (SLOOS), released Monday, confirmed that lenders are stiffening their standards in the wake of the banking collapses.

Survey respondents attributed the changes in lending standards to economic uncertainty, a reduced appetite for risk, deterioration in collateral values and broader concerns about banks' funding costs and liquidity positions, according to the Fed report.

More bad news: Lenders reported that they expect to tighten standards across all loan categories for the remainder of this year, citing the above concerns as well as customer withdrawals.

"The primary economic implications of the Fed's lending survey are that cost of capital is increasing which in turn will damp investment, hiring and growth that underscore the current economic expansion," wrote Joe Brusuelas, chief economic at RSM US in a note. "If lending conditions continue to tighten along the lines implied by this survey the economy would do well to generate barely sub one percent growth in the second half of the year."

The middle class mounts a comeback

You might remember hearing a lot about recession shapes at the start of the pandemic. That's because recessions and recoveries come in shapes and sizes as varied as the alphabet. Perhaps that's why economists have come to name different kinds of economic downturns after letters.

The 2020 recession at the beginning of the pandemic was widely considered to be K-shaped, meaning that separate communities recovered from the economic downturn at varying rates. Some sectors of society experienced renewed growth while others continue to lag behind.

Many who worked in white-collar jobs recovered quickly from the 2020 recession as the government handed out stimulus payments, and stocks and home prices appreciated. Those without savings and who worked service jobs continued to suffer.

Bank of America analyzed credit and debit card spending and found that middle-income consumers (defined as households that earn between $50,000 and $125,000 per year) lagged the average over the pandemic. The money they spent on non-essential goods was particularly soft.

But that's finally changing. Bank of America found in a new analysis that "there appears to be some signs that discretionary spending for the middle-income group is catching up with the average in 2023."

In particular, the survey found, "food services, which includes restaurants and bars, showed solid growth for middle-income households, while lodging spending seems to be holding up better for this group than others as well."

The Six Flags Effect: This rebound in spending could be responsible for a major earnings beat by Six Flags on Monday. The first quarter of the year is typically the worst for the theme park as cold weather limits attendance, but the company announced that revenue rose by 3% to $142 million as guests increased their spending by 7% to $80.88 per person.