MET MetLife Inc

With nothing major on the economic calendar, todays market action will likely reflect follow-through optimism from Tuesday’s strong rally that was triggered by a combination of positive bank ‘stress test’ results and favorable economic data. The Fed’s relatively positive assessment of the economy, coupled with its reiteration of the commitment to keep the easy-money policy in place through late 2014, added to the overall positive mood in the market.

While Citigroup (C) was not so lucky, almost all the other banks passed the Fed’s latest ‘stress test,’ aimed at evaluating the adequacy of the banks’ capital positions under extreme adverse circumstances. This clears the way for many of these banks to share their excess capital with shareholders through increased dividend payouts and share buybacks. In fact, J.P. Morgan (JPM) did just that Tuesday by announcing a 20% dividend hike and buy back $15 billion of its own shares over the coming year.

To be fair to Citigroup, they were not the only one to receive the negative response from the Fed. Four of the nineteen banks – Citigroup, MetLife (MET), Ally Financial and SunTrust Bank (STI) – were asked to resubmit their plans to the Fed before they could be allowed to return capital to shareholders. Overall, the results of this ‘stress test’ were reassuringly positive for the banking group, as none of the banks were asked to raise fresh capital. This should help the financial sector gain some of its mojo back, which will be a net a positive for the broader stock market rally.

We have favorable news from the across the pond as well, with Euro-zone finance ministers formally approving Greece’s second bailout, clearing the way for the release of the first tranche of €39.4 billion the €130 billion in total bailout. We also have Euro-zone Industrial Production numbers for February today, which were not so bad considering that the region is expected to be in a recession this year.

The February Industrial Production numbers, which came in weaker than expected, show that the Euro-zone recession will likely be milder than many had been fearing earlier. The combination of all of this no-so-bad news out of Europe, coupled with the success of the European Central Bank’s very effective liquidity enhancing operations, has been instrumental in bringing down anxieties about the European situation. This has been showing up in a marked downturn in borrowing costs for the Italian and Spanish governments.

Bottom line, we have all around good news. The U.S. economy is steadily improving, Europe is healing and the Fed remains in a supportive posture even if no further quantitative easing program is imminent. And the stock market is rightfully loving it all.

 
CITIGROUP INC (C): Free Stock Analysis Report
 
JPMORGAN CHASE (JPM): Free Stock Analysis Report
 
METLIFE INC (MET): Free Stock Analysis Report
 
SUNTRUST BKS (STI): Free Stock Analysis Report
 
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