Markets Absorb “Stress Test” Results and Remain Optimistic

Despite the fact that the “stress test” results performed on nineteen U.S. banks revealed that ten of these will need substantial government assistance, Wall Street ended last week on a high, with Nasdaq advancing for nine weeks in a row, and the Dow and S&P 500 both rising for eight out of the past nine weeks. The government report that employers cut fewer jobs than was expected during the month of April also contributed to a glass-half-full mindset among investors and thereby boosting the market. Analysts agree that stock market traders are becoming so accustomed to bad news that when the bad news is not as bad as anticipated, it is perceived as “good” news, or at the very least “less worse” news. With U.S. markets showing a strong likelihood of advancing for a tenth week, it appears that nervous investors are overcoming their anxiety and are keen to get back into the market before they miss out.

The week starts off with Federal Reserve Chairman Ben Bernanke delivering the keynote speech at the three-day Financial Markets Conference of the Federal Reserve Bank of Atlanta. It is expected that his address will include a discussion of the stress test results. On Tuesday the Treasury will be releasing its April budget; health care reform will be the focus of a Senate Finance Committee hearing; the report on median home prices for the first quarter of 2009 will be released by the National association of Realtors; and the Census Bureau will confirm the trade gap for March, which analysts anticipate will have widened to $29.2 billion.

Wednesday will see the release of March business inventories, weekly crude inventories and Government reports on import/export prices for April. Before start of trading on Thursday, the April Producer Price Index (PPI), a measure of wholesale inflation, will be released and expectations are that it will rise 0.1 percent as opposed to the 1.2 percent decline in March. The core PPI, an indicator excluding energy and food prices which tend to be volatile, is expected to have climbed 0.1 percent, having presented a flat reading in March. Also before markets open on Thursday, retail giant Wal-Mart will be reporting quarterly results. During the day the Labor Department’s weekly jobless claims report will become available.

Friday’s highlights include the government’s Consumer Price Index (CPI), April’s industrial production and a preliminary consumer sentiment reading for May as compiled by the University of Michigan. So the week ahead is, once again, a busy one, with investors keen to see if Wall Street can extend its positive run to ten weeks.