Bank stocks lead market rally as earnings season begins

The stock market has moved past the 8000 point level, thanks in large part to a surge in bank and financial related stocks.  A number of large banks and financial stocks have seen their share price surge in excess of 50% over the past forty five days. The market has rallied steadily since early March as investors have gained confidence that the worst of the economic recession may soon be over. The market has pinned much of the optimism on a belief that the first quarter of 2009 would be the worst period for the U.S. economy, and a number of recent economic reports (CPI, PPI, Beige Book) have all indicated weakness with the U.S. economy and growth.

Corporate earning reports have been a critical factor in the market over the past two weeks and some of the nations largest companies have reported earnings that indicate the economy is not falling off of a cliff. This past week earnings reports from companies such as Citigroup, JP Morgan, Wells Fargo have all been above most analysts exectations. The banking industry has seen a significant boost in there business from low mortgage rates that have helped to spur a wave of refinance activity. Home owners have taken advantage of the low refinance rates that the FOMC has helped to create through their mortgage policy over the past six months. The refinance boom has been a key ingredient in helping banks gain some earnings momentum during the first quarter of 2009. Wells Fargo, indicated their mortgage activity has topped one hundred billion dollars for the first quarter, a record for their business and primarily all made up of home refinance loans.

The stock market is looking to gain further momentum as we head into the summer months. Economists now appear to be offering different expectations as to how quickly the U.S. should expect to be out of one of the worst economic recessions. Most economists believe that the end of a recession occurs with positive GDP growth. This would help to indicate that the economy is growing as opposed to contracting. Positive growth is not likely to occur until job losses have significantly slowed down and confidence has returned. The dismal retail sales report for the month of March is a sign for the economists who believe that 2010 is the earliest the economy should expect to recover, while the optimists are hoping for a recover towards the latter part of 2009.

The U.S. housing market could be one of the areas that helps to boost the economy. With record low mortgage rates, government refinance programs and lender loan modifications gaining momentum, there is a glimmer of hope that the excess market inventory should begin to disappear and home prices will finally hit their bottom in 2009. The mortgage industry has benefitted from record low refinance rates, but certainly would like to see purchase mortgage applications begin to grow as the market heads into peak home buying season.