Have the Banking Bulls run out of steam?
Posted 12. May, 2009 by Lorraine James in Market Commentary
I’ve asked the question before….exactly what is a recession, apart from a vehicle to increase TV ratings and sell newspapers?
Convince me otherwise, but I find the uptrend in many stock charts more than coincidental with the return of news headlines focussed around our celebrities and the normal ‘getting into other people’s lives’, rather than a consistent hourly report of global doom and gloom.
Seems who wore what to the Logies rates higher than the state of the economy these days!
The news we have heard of late is that our banks are not as fragile as the average person on the street has been led to believe, after all, many are recording profits in an economic crisis.
No surprise then that we’ve seen battered and bruised investors coming out of their hidey holes and buying up big, resulting in a two month rally driven by the financial sector.
So investor confidence has finally returned to the stock market….or has it?
If you’ve ever doubted what drives the financial markets, you need only look at the last month or two and you’ll see it’s not people, but more specifically, emotions. And right now, we are watching hesitation.
This last two months the financial sector has looked set to lead our All Ords pretty quickly back up to the mid 4,000’s, but the U.S Fed has now decided to ‘stress test’ 19 of their big banks to determine which of them might need more capital to cover rising loan losses if the economy worsens.
Of the 19 tested, 10 were ordered this week to raise more capital. Of course the logical way to do this when your share price has rallied hard and now looks appealing, is to get good while the getting IS good. The banks saw the opportunity to get more capital, so they announced large public stock offerings.
How has this affected investor confidence? The conflicting reports in the media have confused a lot of investors. Some experts are warning we could see dramatic repercussions in the future, while others see the latest moves as a sign of confidence not weakness.
For those investors who have jumped on the banking stocks to enjoy the latest rally, the smartest move to make on the news seemed to be to lock in their profits. Hence, even though our banking system is much tougher than that of the U.S, the clash of the bulls and bears on the U.S market have stirred investor emotions here too.
So now we see a pause in pace while the remaining bulls battle the ‘not so confident anymore’ bears for control.
Tags: stock market rally, capital raising, recession, bank stocks <BR/>No related posts.
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