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Stocks jump as fears ebb about bank 'stress tests'
Source: Agencies |
May 7, 2009, Thursday
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INVESTORS are feeling more confident about putting their money in banks.
Financial stocks pulled the market higher yesterday as media reports trickled out that indicated balance sheets at America's biggest banks might not be as frayed as some traders had feared.
The word came a day ahead of the formal release of results from government "stress tests" aimed at determining which banks need to raise more capital. Investors relieved to have assembled an initial scorecard scooped up shares of most banks, even those expected to have to come up with new money.
The Dow Jones industrial average jumped 100 points in heavy trading volume, while the technology-heavy Nasdaq composite index posted a more modest gain.
"To me, this rally has been more a recognition that maybe the end of the world is not at hand," said Philip S. Dow, managing director of equity strategy at RBC Wealth Management.
The news on banks and a surprise drop in a private reading on unemployment provided the latest shots of confidence in a market that has barreled higher in the past two months amid signs that the economy is stabilizing, if not yet recovering. Major stock indicators have surged more than 30 percent from the 12-year lows hit on March 9.
Financial stocks that sent the market plunging from its peak in October 2007 led the advance again as worries about the government's report cards eased.
American Express Co., JPMorgan Chase & Co. and Bank of New York Mellon Corp. will not be asked to raise more capital when federal officials announce the test results Thursday afternoon, but Regions Financial Corp. will need to bolster its reserves, according to people briefed on the results. Those people requested anonymity because they were not authorized to discuss the tests.
Citigroup Inc. will need to raise about US$5 billion, according to a government official who requested anonymity because he was not authorized to discuss the matter. Earlier news reports put that number closer to US$10 billion.
Bank of America Corp. and Wells Fargo & Co. also will be asked to raise capital, people familiar with the matter said earlier this week.
The Dow rose 101.63, or 1.2 percent, to 8,512.28. The blue chips closed above the 8,500 mark for the first time since Jan. 9, leaving the Dow down only 3 percent for 2009.
The Standard & Poor's 500 index rose 15.73, or 1.7 percent, to 919.53. The gains pushed the index higher for the year after a rally on Monday helped erase its losses from 2009.
The Nasdaq rose 4.98, or 0.3 percent, to 1,759.10.
Many analysts including Doug Roberts, chief investment strategist at ChannelCapitalResearch.com, remain cautious.
"Just because things aren't getting worse, does that necessarily mean that things are going to get better?" he said. "I don't think this is the beginning of a new bull market."
Beyond the rally in financial stocks, an unofficial reading on unemployment showed private employers slashed far fewer jobs in April than in March. The ADP National Employment Report said that private sector employment fell by 491,000 last month, a huge improvement from the 708,000 jobs lost in March.
Unemployment has been one of Wall Street's biggest worries about the economy so the ADP survey delivered a reassuring sign ahead of the Labor Department's April jobs report on Friday.
There has been much speculation about which of the nation's 19 largest financial companies are most in need of more cash. Analysts expect about half of the banks will be asked to boost their capital.
Among banks not expected to have to raise money, AmEx rose 57 cents, or 2.2 percent, to US$27.14, while JPMorgan rose US$2.40, or 6.9 percent, to US$37.22. Bank of New York Mellon rose US$3.05, or 11.1 percent, to US$30.46.
Banks being told to raise money gained ground as investors showed relief they weren't being asked to come up with more. Citigroup rose 55 cents, or 16.65 percent, to US$3.86, while Bank of America rose US$1.85, or 17.1 percent, to US$12.69. Wells Fargo rose US$3.62, or 15.6 percent, to US$26.84. Regions Financial rose 34 cents, or 6.2 percent, to US$5.83.
The KBW Bank Index, which tracks 24 of the largest U.S. banks, jumped 11.5 percent. Financial stocks touched off the market's recovery in March after big bank CEOs said business was improving.
In other trading, the Russell 2000 index of smaller companies rose 2.54, or 0.5 percent, to 505.09.
Two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.9 billion shares.
Bond prices rose, pushing the yield on the benchmark 10-year Treasury note down to 3.16 percent from 3.17 percent late Tuesday.
Financial stocks pulled the market higher yesterday as media reports trickled out that indicated balance sheets at America's biggest banks might not be as frayed as some traders had feared.
The word came a day ahead of the formal release of results from government "stress tests" aimed at determining which banks need to raise more capital. Investors relieved to have assembled an initial scorecard scooped up shares of most banks, even those expected to have to come up with new money.
The Dow Jones industrial average jumped 100 points in heavy trading volume, while the technology-heavy Nasdaq composite index posted a more modest gain.
"To me, this rally has been more a recognition that maybe the end of the world is not at hand," said Philip S. Dow, managing director of equity strategy at RBC Wealth Management.
The news on banks and a surprise drop in a private reading on unemployment provided the latest shots of confidence in a market that has barreled higher in the past two months amid signs that the economy is stabilizing, if not yet recovering. Major stock indicators have surged more than 30 percent from the 12-year lows hit on March 9.
Financial stocks that sent the market plunging from its peak in October 2007 led the advance again as worries about the government's report cards eased.
American Express Co., JPMorgan Chase & Co. and Bank of New York Mellon Corp. will not be asked to raise more capital when federal officials announce the test results Thursday afternoon, but Regions Financial Corp. will need to bolster its reserves, according to people briefed on the results. Those people requested anonymity because they were not authorized to discuss the tests.
Citigroup Inc. will need to raise about US$5 billion, according to a government official who requested anonymity because he was not authorized to discuss the matter. Earlier news reports put that number closer to US$10 billion.
Bank of America Corp. and Wells Fargo & Co. also will be asked to raise capital, people familiar with the matter said earlier this week.
The Dow rose 101.63, or 1.2 percent, to 8,512.28. The blue chips closed above the 8,500 mark for the first time since Jan. 9, leaving the Dow down only 3 percent for 2009.
The Standard & Poor's 500 index rose 15.73, or 1.7 percent, to 919.53. The gains pushed the index higher for the year after a rally on Monday helped erase its losses from 2009.
The Nasdaq rose 4.98, or 0.3 percent, to 1,759.10.
Many analysts including Doug Roberts, chief investment strategist at ChannelCapitalResearch.com, remain cautious.
"Just because things aren't getting worse, does that necessarily mean that things are going to get better?" he said. "I don't think this is the beginning of a new bull market."
Beyond the rally in financial stocks, an unofficial reading on unemployment showed private employers slashed far fewer jobs in April than in March. The ADP National Employment Report said that private sector employment fell by 491,000 last month, a huge improvement from the 708,000 jobs lost in March.
Unemployment has been one of Wall Street's biggest worries about the economy so the ADP survey delivered a reassuring sign ahead of the Labor Department's April jobs report on Friday.
There has been much speculation about which of the nation's 19 largest financial companies are most in need of more cash. Analysts expect about half of the banks will be asked to boost their capital.
Among banks not expected to have to raise money, AmEx rose 57 cents, or 2.2 percent, to US$27.14, while JPMorgan rose US$2.40, or 6.9 percent, to US$37.22. Bank of New York Mellon rose US$3.05, or 11.1 percent, to US$30.46.
Banks being told to raise money gained ground as investors showed relief they weren't being asked to come up with more. Citigroup rose 55 cents, or 16.65 percent, to US$3.86, while Bank of America rose US$1.85, or 17.1 percent, to US$12.69. Wells Fargo rose US$3.62, or 15.6 percent, to US$26.84. Regions Financial rose 34 cents, or 6.2 percent, to US$5.83.
The KBW Bank Index, which tracks 24 of the largest U.S. banks, jumped 11.5 percent. Financial stocks touched off the market's recovery in March after big bank CEOs said business was improving.
In other trading, the Russell 2000 index of smaller companies rose 2.54, or 0.5 percent, to 505.09.
Two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.9 billion shares.
Bond prices rose, pushing the yield on the benchmark 10-year Treasury note down to 3.16 percent from 3.17 percent late Tuesday.
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