Bank stress test results… (5/09)

Bank stress test results to try market’s advance

By Sara Lepro, 5/3/09

NEW YORK (AP) — A week laden with key economic reports and results of stress tests on banks will determine whether Wall Street is ready to rally further or take a sharp U-turn.

The government’s assessment of the health of 19 big banks plus April employment data and retail sales reports will be the latest challenges to a rally that has driven stocks to their best two-month performance in nearly 35 years. Since March 9, the Dow Jones industrials are up 25.4 percent and the Standard & Poor’s 500 index is up 29.7 percent.

Since the rally began, investors have been questioning whether Wall Street has indeed seen a bottom after the devastating losses of the fall and winter, or whether the advance has really been based on faulty speculation. But as the gains stretch into a third month, and data continues to suggest that the economy’s slide is slowing, confidence is building that the market has the potential to keep moving higher.

“It takes a while for market participants to shift gears and really believe in what we’re seeing,” said Keith Walter, portfolio manager of the Artio Global Equity Fund. While some observers are still skeptical or at the least cautious about the rally, the market’s performance during previous recession has shows that stocks tend to hit bottom an average of four months before a recession ends.

Investors have kept buying although first-quarter earnings reports have been mixed, layoffs continue and worries persist about some of the nation’s biggest banks. Concerns about a potential swine flu pandemic and the bankruptcy filing of Chrysler LLC did little to throw the market off course last week. The major indexes rose about 1.5 percent over the five-day period.

“The market is looking higher and efforts to sell it off are constantly failing,” said David Kreinces, portfolio manager at Newbury Park, Calif.-based ETF Portfolio Management, which specializes in exchange-traded funds. “This week coming up will be very telling to see if the market can hold on to these gains without any meaningful pullbacks.”

The biggest threat to the rally this week is likely to be the results of the stress tests the government is performing on the 19 largest U.S. banks. The government is expected release its findings on Thursday.

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