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The Fed sounded the all clear for most major U.S. banks, and its stress test results could be positive for stocks Wednesday, even though four of the 19 institutions failed.
J.P. Morgan fired up a major rally in bank shares and the stock market in the final hour of trading Tuesday when it announced, ahead of the Fed’s release, that it was raising its dividend by five cents and buying back $15 billion in stock.
The Fed was to have reported stress test results Thursday afternoon but moved up the release to 4:30 p.m. Tuesday due to concerns about the information getting out early. A senior Fed official said the J.P. Morgan release was not the cause, and the timing of the J.P. Morgan release was due to a miscommunication with the Fed.
“I would suspect there’s some follow through that would be good follow through, to this, not negative. I think it’s going to be on balance positive but what I’d like to see is banks (stocks) going their own way and not highly correlated here. That’s a sign that the system is normalizing,” said Barry Knapp, head of equity portfolio strategy at Barclays.
Citigroup , Met Life , Ally Financial and Suntrust all failed the test, which put bank balance sheets through a rigorous test simulating harsh financial conditions and unemployment of 13 percent.
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