Later today the Fed will play King Solomon with the financials deciding who is strong and who is weak. Official results of those highly anticipated government stress tests are due out today at 5pm.
19 of the nation’s largest financial firms have been tested to see if they could handle a "what-if" scenario involving a worsening recession: 10.3 percent unemployment and a 22 percent drop in home prices over the next two years.
According to published reports, banks will need a total of $75 billion in additional capital to survive that scenario.
Here’s where we think things stand right now:
Who Needs Capital?
Bank of America
Source: WSJ, Bloomberg
It’s interesting to note that ahead of the results Robert W. Baird & Co upgraded Bank of America to "outperform" from "neutral" saying the bank's capital needs are manageable and government-ownership risks are minimal.
Separately, analysts at Stifel Nicolaus also upgraded Bank of America to "buy" from "hold".
Who Doesn't Need Capital?
Capital One Financial
Source: WSJ, Bloomberg
How should you be trading?
Instant Trading Insights from the Fast Money Crew
Because there have been so many leaks, I think we know mostly everything we need to know already, muses Fast Money trader Pete Najarian. We know how the tests are going to be implemented and how they will play out. The regulators have said the government will not allow any of the banks to fail. Nothing they say should be unexpected.
It seems to me that the banks that need the most money like Citi and Bank of America are up the most and the ones that don’t are down, muses Zach Karabell of RiverTwice Research. I don’t know what to make of that other than to say investors are not overly agitated about the banks’ needs.
I got rid of banks from my portfolio, yesterday, reveals strategic investor Dennis Gartman. They had a wonderful run but I think it’s time to go to the sidelines. In about 2 weeks I think it’s okay to start buying banks again.
In this sector, I’m keeping an eye on Goldman Sachs, adds Greg Troccoli of Opalesque. The stock has had about a 300% move since November 21st. There’s no doubt to me that we need a pullback. I’m looking for it to slide to $110 - $120, but at those levels I’d be a buyer.
CISCO SELLS OFF, VIOLENT MORNING REVERSAL
Elsewhere, tech stocks fell Thursday despite stronger-than-expected results from bellwether Cisco Systems after the close on Wednesday. In fact Cisco was among the top drags on the Nasdaq along with Apple and Qualcomm also lower.
Some investors found the move surprising after Cisco Chief Executive John Chambers said his customers were seeing more stability, adding to hopes that business conditions would soon recover.
"The techs are under a little bit of pressure," explains Peter Kenny, managing director at Knight Equity Markets. "There is a lot of rotation going on and that's really driving the market.”
What's the trade?
Cisco is up 40% since April, says Pete Najarian. Why chase it? But on a pullback I think you gotta’ like it.
I’d be cautious about getting on the tech train right now, adds Greg Troccoli, especially if you’ve not been in prior to this.
OIL, COMMODITY BREAKOUT CONTINUES
U.S. crude futures rose more than $2 on Thursday, jumping above $58 a barrel to a fresh 2009 peak on optimism about the economy.
Crude is up 25% over the past 2 weeks while the S&P is only up about 13%, reveals Tradition Energy’s Addison Armstrong. Prior to that they had been pretty well correlated. I’m looking for a pullback down to $53.
KEY QUESTIONS INTO THE CLOSE
BUYING BANKS? Ahead of the stress test results this afternoon, should you buy the banks?
I wouldn’t buy banks right now, counsels Greg Troccoli. In fact I’d take profits.
NVIDIA BEFORE CLOSE?Nvidia reports earnings after the bell today, should you buy this chip name?
I would dip in, counsels Zach Karabell, but don’t go all in.
BUY WAL-MART ON STRENGTH?Wal-Mart posted a 5 percent rise in April sales at U.S. stores open at least a year, versus analysts' average estimate for a 2.9 percent increase, according to Thomson Reuters estimates.
I think this stock is cheap, says Pete Najarian. I see way more upside.
JOBS REPORT? The government releases the jobs report tomorrow, should you buy ahead of the release?
I wouldn’t buy ahead of it, counsels Dennis Gartman. I think the number is already in the market.
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CNBC.com with wires