Wall Street reopens on Wednesday, and no one really knows what to expect. That could make the next few days of earnings reports more influential than usual.
In this video Jason shows you two of his favorite big banks to trade and one that you should short on any strength.
Big bank stocks received a boost when many of them passed the Fed's latest stress tests today.
After JP Morgan (NYSE: JPM) announced a $15 billion buyback, other bank stocks such as Bank of America (NYSE: BAC), Citi (NYSE: C) and Goldman Sachs (NYSE: GS) exploded 6% to the upside.
Stocks slid during the morning session and began a more gradual recovery after noon eastern time. The Dow closed up 4.76 points to 8,183 in choppy trading all day and on news that initial jobless benefits claims came in at 565,000 down from the 605,000 that analysts had expected.
I still believe Geithner blew his opportunity to use the stress-tests to force banks to sell their toxic assets and improve their balance sheets. But as we know, Geithner simply does not play hardball. And that's too bad, because our economy could use some leadership from the Treasury.
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Interest rate concerns and inflation worries put pressure on stocks today after the government's sale of $19 billion had a harder than usual time getting buyers. Investors seem concerned about the government's growing debt and that it could spur higher inflation and interest rates.
The Dow lost 24.04 points to close at 8,739.02; the Nasdaq shed 7.05 points to end the trading session at 1,853.08; and the S&P was down 3.28 points for 939.15.
Stocks comprising the Russell 2000, comprised of the 2,000 largest small-cap stocks, brought the index down to 523.41 on a loss of 4.52 points.
Other small-cap leaders include one of yesterday's leaders, Satyam Computer Services (NYSE:SAY) up 35.7% after being rated "overweight" by an analyst from JP Morgan; American Axle & Manufacturing (NYSE:AXL), another of yesterday's leaders, up 25.7%; and Corel Corp. (Nasdaq:CREL) up 34.75%.
Decliners were lead by NCI Building Systems (NYSE:NCS) down 26.1% on worries over its reports of larger than expected Q2 losses. Shares were going for $3.16 at market close, down from an opening price of $3.80.
Other small-cap decliners include one of yesterday's leading gainers, Sequenom (Nasdaq:SQNM). Yesterday SQNM lead small-cap gainers with a 45.97% gain but today lead decliners by shedding 22.83% of its opening price to close at $4.09. And after shedding 20.17% off its price yesterday, Quiksilver (NYSE:ZQK) saw shares drop another 12.71%. So far this week investors holding shares in Quiksilver have endured a total loss of 27% since Friday's close.
*****"The worst is to come…"
That's what MetLife's (NYSE:MET) Chief Investment Officer Stephen Kandarian told Bloomberg this morning.
He was talking about commercial mortgage defaults. He notes that "[t]ypically there's a lag between when the economy softens and when the defaults actually occur."
Bloomberg also cites a study from Real Estate Econometrics LLC that forecasts default rates for commercial real estate may hit 4.1% by the end of the year.
What does commercial real estate have to do with an insurance company? Plenty…
*****Insurance companies take in cash in the form of the premiums we pay. They then invest that money in order to pay off claims down the road. As their investment returns compound, they profit.
But when their investments lose money, trouble starts. And trouble is exacerbated when insurance companies sell guaranteed returns to investors in the form of annuities.
The promise of annuities forces insurance companies to seek riskier investments to boost their returns. And many have turned to mortgage-backed securities to make more money.
*****MetLife has a $300 billion investment portfolio. That portfolio lost 23% in the first quarter of this year. Mr. Kandarian freely admits he's looking for higher returns to make up the losses. And he's looking at adding securities backed by commercial mortgages, in addition to continuing to originate loans to the commercial real estate sector.
It reminds me of the gambler, who after suffering a big loss, decides to start doubling down and taking more risks to win his money back. It usually doesn't end well.
Of course, what he should do is simply step away from the table. But MetLife and other insurers can't -- they have to make money to meet their obligations. It's not a sure thing, but I can imagine it ending poorly for some insurance companies.
Small-cap stocks remained unsettled this morning, unable to embrace Friday’s rescue plan package as equity markets around the world seized up and credit pipelines remained clogged despite massive additional liquidity injections this morning by the Federal Reserve. At 9:50 a.m. ET, the Russell 2000 (NYSE:IWM) was down 19.38, or 3.13%, at 600.02, slipping to the lowest point on intraday charts since May 2005.
In Europe, extraordinary measures were taken over the weekend on the banking front, with France’s BNP Paribas buying assets of beleaguered Fortis, while in Germany a rescue deal for Hypo Real Estate was sweetened by another 15 billion euros of liquidity, adding to an earlier pledge of 35 billion euros.
Everyone has been talking about the Federal Reserve slicing the Fed funds rate, but that rate has already been trading well below the current 2% rate in the market. This morning, the Fed increased the size of its cash auctions and also offered banks interest accrual on reserves. Stock index futures did pull off the overnight lows heading into the open on the Fed injection news, but the inability to stabilize financial markets in the direct aftermath of the $850 billion financial bailout bill Friday reflects just how deep the crisis is running.
Looking at market action around the world, European shares were off nearly 5% into the U.S. stock market opening. Elsewhere, Russian stocks tumbled some 15%, prompting various exchange trading halts. Japan was down 4.9%, Hong Kong off nearly 5%, China down 5.1%, Taiwan down 4.1%, Australia off 3.3%, Singapore down 5.6%, South Korea off 4.2% and India down 5.7%.
Market research experts at Goldman Sachs slashed their economic forecast for growth and interest rates “substantially” in a report issued Friday afternoon. Goldman said “The recession that we have been forecasting now looks likely to be deeper and longer, taking the unemployment rate to 8% by late 2009 and pushing the . . .
Put financial services and insurance together in a sentence and most people think of some of the nation's largest companies in the industry: Berkshire Hathaway Inc. (NYSE: BRKA), American International Group, Inc. (NYSE: AIG), MetLife Inc. (NYSE: MET), Allstate Corp. (NYSE: ALL) and The Hartford Financial Services Group, Inc. (NYSE: HIG). But one ever-growing small-cap is poised to make a name for itself.
Shifrin also said that American Physicians financial services segment has performed very well, with revenues up 46% for the first six months of 2007, compared with the same period last year, and pretax profits up an impressive 68% in that same time frame.