Financials - Stress Tests Easily Pass

Federal Reserve, CPI and Prospective Rate Increases

A string of robust Consumer Price Index (CPI) readings spooked the markets as a harbinger for the inevitable rise in interest rates. Furthermore, Federal Reserve commentary also induced volatility in the markets when Jerome Powell spoke in early June. As investors grapple with the prospect of downstream rate increases, pockets of vulnerabilities throughout the market have been exposed. The overall markets have been on a blistering bull run since the November 2020 presidential election cycle. Year-to-date, the S&P is up over 16%, while all valuation metrics are misaligned with any historical comparator with heavily stretched valuations and record risk appetite. As real inflation enters the fray, these frothy markets will come under pressure and possibly derail this raging bull market. Although rising rates may introduce some systemic risk, the financial cohort is poised to go higher. The confluence of rising rates, post-pandemic economic rebound, financially strong balance sheets, a robust housing market, and the easy passage of annual stress tests will be tailwinds for the big banks.

2021 Financial Stress Tests

The recent stress tests were easily passed and indicated that the biggest U.S. banks could easily withstand a severe recession. In addition, all 23 institutions in the 2021 exam remained “well above” minimum required capital levels during a hypothetical economic downturn.

The central bank said that the scenario included a “severe global recession” that hits commercial real estate and corporate debt holders and peaks at 10.8% unemployment and a 55% drop in the stock market. While the industry would post $474 billion in losses, the Fed said that loss-cushioning capital would still be more than double the minimum required levels. Continue reading "Financials - Stress Tests Easily Pass"

Citibank Fails The Fed Stress Test - See If You Can Spot Why

Hello investors, traders and MarketClub members everywhere! Adam Hewison here, President of and co-creator of MarketClub, with a look at Citigroup, Inc. (NYSE:C) on Thursday, the 27th of March.

News came out yesterday that the Fed had "stress tested" 30 banks and that 5 of the 30 had failed to pass. While some of the banks were expected to fail and came as no surprise, what was a surprise to the market was the failure of Citigroup, Inc. (NYSE:C).

In the Trade Triangle column of the image below, do you notice anything different about any one particular bank?

As you can clearly see, Citigroup (NYSE:C) has a red monthly Trade Triangle next to its name. That red monthly Trade Triangle kicked in on January 31st and served as a warning to MarketClub members that all was not well at Citigroup. Continue reading "Citibank Fails The Fed Stress Test - See If You Can Spot Why"

Poll: Do you think the bank stress test is credible?

The Federal Reserve announced yesterday that 17 of the nation's 18 largest banks could survive a severe economic meltdown. The Federal Reserve estimated that these banks had enough reserve capital to lose upwards of $462 billion dollars and could still survive if the economy were to enter another recession similar to the one we just had.

Of the 18 banks tested by the Fed, only Ally Financial, the former finance arm of General Motors (GM), would sustain big enough losses to potentially put it out of business. All of the other banks would have enough capital to make it through. That leads to today's poll question...

Do you think the bank stress test is credible?

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