Details of bank stress tests lift market
Stocks are looking up during Friday trading after the Federal Reserve released details of how it conducted bank “stress tests.”
At 3:00 pm ET, the Russell 2000 (NYSE:IWM) is up nearly 3%, while the Dow is up 1.96% and the S&P 500 is up 2.04%.
Small caps making large moves today include Ruth’s Hospitality Group (Nasdaq:RUTH), up over 31% on very heavy volume ahead of its earnings release on May 5.
*****Today is the day Treasury Secretary Geithner lets us in on the criteria he’s using for the bank “stress test” to determine the health of these financial firms going forward. Stocks have already responded well to his comments that most banks are well-capitalized.
But even if they are well-capitalized now, that status could change going forward. Consider these stats from Bloomberg:
Pittsburgh-based PNC Financial Services Group Inc. saw nonperforming assets -- those no longer accruing interest -- jump more than fivefold in the first quarter from a year earlier. They more than quadrupled at U.S. Bancorp in Minneapolis. At 13 of the largest U.S. banks, bad assets increased 169 percent on average from a year ago, according to first-quarter data compiled by Bloomberg.
Clearly, so long as the economy doesn’t improve, non-performing assets will rise. That will mean fewer loans from banks and fewer investments in the financial sector from private investors,
*****Ford (NYSE:F) lost $1.4 billion in the first quarter. The company also said it’s burning through less cash and doesn’t expect to need any government loans. That’s a shot in the arm for the market, as GM and Chrysler seem certain to enter bankruptcy.
I’m not sure why GM stock still has a bid. But I suppose if you don’t mind suffering a 100% loss, it might be worth a shot in the dark to get a big payday. GM stock is essentially a lottery ticket at this point.
*****Durable goods orders are out this morning, and it’s not as bad as you might have expected. Orders for non-defense capital-equipment goods excluding aircraft rose 1.5% in March after a 4.3% gain in February and a 12.3% decline in January.
Business inventories still need to get worked off some, and that’s probably going to mean more job losses. But at least we’re starting to see good news seep into the manufacturing sector.
About the Author
Ian Wyatt is a co-founder and President of Business Financial Publishing and the Chief Investment Strategist and Publisher of SmallCapInvestor.com and SmallCapInvestor.com PRO.
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