Financials Looking for Big 2Q Results
As we know, stocks posted a hefty rebound today, fueled by speculation that 2Q bank earnings would improve over the quarter before. While we all know that Chase’s earnings will improve after raising minimum payments from 2% to 5%, the remaining banks don’t seem like they’re in such great shape.
Not So Bad = Good
When it comes to the stock market, its all relative. If banks come out with numbers that make it appear the recession is either bottoming out, or improving, financial stocks are going to soar. This boils down to trader psychology. At this point, if you’re a floor trader, you’re starting to believe the clouds will never retreat and that we’re near economic apocalypse. When good news comes out, or as others say, “green shoots”, the market tends to overreact to the positive side.
The Financials Will Lead This Recovery
Weird isn’t it that every bubble ultimately leads itself back out. At the tech bubble bottom, tech stocks rallied some 4 and 500% from their lows. Oil stocks, which dropped like a rock through late 2009, have benefited from a 100% gain in oil prices. Both of these industries received no bailouts either. So taking all of this in consideration, it should be no surprise that banking stocks will ultimately lead the economy back into recovery. And conveniently, it is in the recovery that banks do the best, as their borrowing rates are still low and the spreads still high.
Stimulate This
The stimulus package is going to start kickin’ in any time now. With just a few percentages of the total package spent, the remainder of 2009 and 2010 are when the wheels really get to turning. All of that cash is going to have to go somewhere, but first it’s going to have to go to a business owner and then to a worker. If the stimulus can create enough jobs that a mini-boom can bring real estate and banking back, we might escape the crisis for a few years. Longstanding problems such as huge deficits and trade imbalances aren’t going anywhere anytime soon, however.
The economy has started to improve in many areas now although ti will be time before a full recovery is possible. All in all the coming year should be good for businesses. In UK and US, the property market has shown first signs of improvement already.
At this point in time, what do you suspect is the game plan for banks and their ability to extend credit? If the commercial real estate market from New York to California can be preserved in this down turn, it will need to be through credit. This is either the last shoe to drop or an opportunity to bottom and move forward.
Brian Callahan
Boston