Friday, June 25, 2010

With FinReg Uncertainty Out Of The Way, Can Financial Stocks Rally?

The markets are slightly higher in early trading, after Congressional leaders seeming to reach an agreement on what the financial regulation bill would look like. The "Volcker rule", which is aimed at banning banks from proprietary trading, was watered down by the Senate.

These types of sweeping regulation are often overkill in terms of regulating behavior from the paste that is probably unlikely to be repeated anyway, due to the lessons learned from the recent collapse. Nonetheless, markets hate uncertainty. So to the extent that this removes a layer of uncertainty from the financial markets, bank stocks should be able to lift.

The financial etf is up +1.25% so far, not a terribly exciting reaction. So that is something to watch.

In economic news, final Q1 GDP was revised lower to +2.7%, which is a bit disappointing. And I think its safe to assume that future quarter's growth rates will be below those levels. On a positive note, the Univ. of Michigan consumer sentiment index rose to 76.0, its highest level since Jan. 2008. So that is a bit of a bright spot.

In corporate news, Oracle (ORCL) reported strong earnings last night and its stock is higher. Research In Motion (RIMM) topped estimates, but its mixed guidance is not being well received by the market, and the stock is lower so far.

At the close today comes the annual rebalancing of the Russell indexes, which is likely to add some volatility at the close of what would likely otherwise be a quite close on a summer Friday.

Asian markets were lower overnight, and Europe was down this morning. The euro is also lower, while the dollar is higher. As for commodities, gold is higher to $1254, and oil is also up to $77.20.

The 10-year yield is off its 52-week lows, currently at 3.11%; and the VIX is fractionally higher to 29.85, just below the key 30 level that I like to watch as a red flag.

Trading comment: The market continues to feel heavy to me. I haven't done a lot of selling this week, as the market could still bounce into quarter end. I have been moving in slow steps to adopt a more defensive posture in portfolios, and I still think that is the right call.

It could be that the market will remain in a wide trading range for the near future. If that is the case, then there is still room to move lower before another good buying opportunity presents itself.




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