Bank Stress Tests May Pose Major Obstacle to Stock Rally
Maybe Not That Bad
Market optimists believe the release of the stress test results could be a non-event for several reasons.
Initially the Obama administration wanted to keep the test results private, reasoning that if word got out that individual institutions came out poorly it could trigger a run on those banks. Since then, the administration has relented and agreed to release the results, though some confusion remains over just how detailed the data will be.
The most recent statements from the administration indicate that the data will be fairly complete both on individual institutions and on the 19 banks as a whole.
That has some hoping that the test results at least aren't bad enough to cause panic among investors.
"My guess is that the people in the administration are smart enough that they would not set the stage for an event that could derail either the stock market recovery or economy recovery by putting out confidence-breaking bad news," said Peter J. Tanous, president and director of Lynx Investment Advisory in Washington, D.C.
"It would seem stupid," he added, "for the administration to announce that it's going to do these tests and reveal their results without having a clue as to what those results could look like and what effect they could have on the markets."
Moreover, the market may not even be that focused on financials anymore after the sector has been beaten down so badly over the past two years, said Peter Miralles, president of Atlanta Wealth Consultants.
"The market is not taking its cues from what's going on in the banking system right now," Miralles said. "The market is taking its cue from other businesses that are doing well."
--An earlier version of this article incorrectly stated that Merrill Lynch, not JPMorgan Chase, issued the warning about banks involved in the stress tests.
--Reuters contributed to this report.