Money & Investing - Banks.com

Bank stocks are leading a rally this afternoon on the U.S. stock market. The Dow Jones Industrial Average (^DJI) is up more than 200 points after yesterday’s below-8,000 close right now as the financial sector cheers the rumors that the government is committed to propping up the banking system. Indeed, there are plenty of rumors circulating about the possibility of infusing Bank of America with another $200 billion, as well as making sure that bank rescue is a part of the latest economic stimulus legislation. (The bank rescue in the U.S. is being greeted completely opposite to the reception the U.K. bank bailout has met.)

Even thought the stock market tumbled dramatically earlier today, there is confidence that the government won’t let the banking sector fail, and that is driving investors to put their money back into equities. CNN Money reports that the fact that many stocks have been oversold is also contributing to the rally:

“It’s an oversold rally after days of selling,” said Joseph Saluzzi, co-head of equity trading at Themis Trading. He said that the market action so far in 2009 is likely to continue throughout the next few months. “We’re going to see this kind of thing, where you have negative headline after negative headline, until one bit of good news comes out that squeezes the short-sellers.”

Billions (maybe trillions) for banks. Not so much for taxpayers.

Even as the government prepares to spend billions more — ultimately it is conceivable that bank rescue will run in the trillions — on rescuing the large banking entities that made poor decision, it plans to offer a sop to American taxpayers: A $500 tax credit. Many see this tax credit is mostly a gesture meant to placate the masses angry at watching their hard-earned tax dollars go to the folks at the top of the economic food chain. $500 over two years isn’t nearly enough to make a real difference to most taxpayers. Indeed, the thinking is that if we are going to have to pay all this economic stimulus back with interest, the money should be given directly to the taxpayers, rather than to big banks.

After all, the banks haven’t proved that they are any better at financial decision making than the rest of us.

Stocks started off today strong, thanks to some help from various attempts to shore up the economy and boost confidence in the market. Or at least boost confidence in the financial sector of the stock market. Right now, it appears as though Bank of America is going to be in a better place, thanks to the bailout money it is about to receive from the government. This, along with the news that Citi plans to split itself in two in an effort to salvage its balance sheet, is providing some optimism for investors on the stock market. Is now the time to invest in banks — while they’re at rock bottom prices?

But that’s not all the “good” news for the economy and the stock market from this week:

• Congress is okaying the release of the rest of the TARP funds approved last fall. The money is supposed to also help the regular folks — not just the big banks. But we’ll see how that really turns out.
• Economic stimulus legislation has been presented to the public. This legislation looks promising in some areas, but not so great in others. It is nice that infrastructure and education and states are likely to get some support. But tax cuts at a time of increased spending does not seem like the best idea. But it’s the idea that is politically popular right now. (At least, until it becomes evident that taxes will have to go up again.)

In any event, some are predicting the light at the end of the financial mess tunnel. I’m not sure that it’s not an oncoming train…

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tomorrow banks start releasing their fourth quarter earnings. JPMorgan Chase is first up, with already-embattled Citi set to release earnings on Friday. After today’s retail sales data totally slammed the stock market, no one expects great things from banks. Indeed, with bailout money basically having done nothing to really help banks, it looks as though earnings season is going to be bleak. The Street reports on what is likely for financial institutions:

Banks will once again be busy setting aside additional capital for future loan losses, taking further impairments on securities-related instruments and assuring Wall Street that their capital levels are safe.

Indeed, the coming quarter is not expected to be kind to banks and other financial sector stocks, either. Predictions of a longer recession are causing jitters, and we just keep finding out more and more about over-leveraged positions and exposure to risk. Banks are in a bad way.

It would be a great time to buy financial sector stocks, exept there is absolutely no way of predicting which banks will completely implode, leaving stock utterly worthless. This is because in the current volatile economic climate, anything could send any bank over the edge. The recent disintegration of once venerable financial monoliths attests to that.

It’s always a tricky thing to pick stocks, but there are some bargains to be had, even in the financial sector. Look at fundamentals, and try to see if there is any good news buried in the up coming earnings reports. And, if you are unsure of any financial institution, look elsewhere. There are plenty of bargains in other sectors as well.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.