Wednesday’s Market Recap: Stocks Receive A Boost From The Financial Sector

The markets received a boost from the financial sector as investors awaited news on the government stress test. The DJIA (^DJI) was up 1.2% closing at 8512.28. The S&P 500 (^GSPC) and NASDAQ (^IXIC) 1.74% and 0.28% respectively. The 10 year saw yields shrink to 3.12% while real assets had mixed results as Gold ended up to settle at $911.9. Oil was down to $56.23 at the close of the NYMEX trading.

Walt Disney (DIS) helped the composites as it posted stellar first quarter earnings despite write downs and weak results from its movie and theme park segments. Disney reported a 46% drop in profit making $613 million compared to $1.13 billion during the same period last year. Disney saw revenues slip a meager 7% to $8.07 billion this past quarter. Write downs and restructuring costs came from radio licenses as well as investments in foreign media companies. The latest news is that Disney acquired a stake in online video provider Hulu to combat the popularity of Google’s (GOOG) Youtube. Disney seems to have weathered the recession well and should benefit from any increase in consumer spending.

Investors were anxiously awaiting any reports from the government stress test today, good or bad. After hours, news was released that JPMorgan (JPM) and America Express (AXP) would not need to raise extra capital. JPMorgan was seen as the best commercial bank on the street and seems to have the best balance sheet as found by the stress tests. On the other hand, Citi (C), GMAC, Bank of America (BAC), and Wells Fargo (WFC) seem to require large amounts of capital to provide a cushion against any further deterioration of assets. It will be interesting to see how investors treat these banks going forward and also how these institutions plan on shoring up their balance sheet and alleviating concerns about their financial health.

Furthering the rally, the government outlined the process for repaying back TARP. The likes of Goldman Sachs (GS) have been anticipating such news for weeks. The Treasury is requiring that all banks come in clear with the stress test but are also able to borrow funds without the help of the newly establish facilities opened last fall. This will not be too much trouble for those able to maintain investor confidence to raise debt or equity. The government also issued a statement saying that no bank will be allowed to fail, reinforcing today’s rally that saw the KBW Bank Index spring 12% while the Financial SPDR (XLF) leapt 8%.

Disclosure: The Fund the author is associated with is long JPM, GS, XLF, and GOOG. It also has interests in DIS.

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