Blue-chip stocks are extending their rally for the fifth consecutive day as the nation's largest financial institutions await results from the 2012 stress tests administered by the Federal Reserve. With roughly an hour left in the trading session, the Dow Jones Industrial Average (DJINDICES:^DJI) is higher by 29 points, or 0.2%.
Conflicting economic reports don't stymie stocks
Today's gains were fueled in part by news that the employment situation in the U.S. is continuing to improve, albeit gradually. According to data released by the Department of Labor this morning, first-time jobless claims fell by 7,000 to 340,000 for the week ended March 2. This was better than the 355,000 figure economists surveyed by Bloomberg had predicted.
"The general employment picture in the U.S. has stabilized," an economist quoted by the news source said. "We're still at a very high level of unemployment and underemployment, but it's not getting worse and that's a key factor."
Tomorrow, the Department of Labor releases its estimate of nonfarm payrolls for the month of February.
In a separate report released by the Department of Commerce today, the government said the U.S. trade deficit widened to $44.4 billion in January, up from $38.1 billion in December. The uptick was a function of both declining exports, which fell by $2.2 billion, and increasing imports, which grew by $4.1 billion.
According to an economist quoted by Reuters, "The sharp deterioration in trade shaves a bit from the outlook for growth in the first quarter." At the same time, however, she noted that there are "signs that domestic demand is firming, which would provide a major offset to weakness abroad."
Bank stress tests results due out today
Finally, in terms of individual stocks, both of the Dow's core banking components are higher in afternoon trading. Bank of America (NYSE:BAC) is up by 2.2%, while JPMorgan Chase (NYSE:JPM) has climbed 0.9%. Both companies find out today whether or not they passed the 2012 stress tests. Given the performance of their shares today, it seems clear that investors are assuming they will.
As I discussed at length, the purpose of the tests is to determine whether or not banks have adequate capital to survive an economic downturn. The most extreme hypothetical scenario employed by the Fed assumes that U.S. GDP contracts by an average of 4% this year, the unemployment rate gradually increases to 12.1% in the second quarter of next year, and home prices fall an additional 20% by the end of 2014.
Both banks fared respectably in last year's test -- click here to see the results. JPMorgan's pivotal Tier 1 common capital ratio declined to 6.3%, and B of A's to 5.7%, after being subjected to an analogous hypothetical economic scenario. The minimum required by the Fed is 5%. It's for this reason, as well as the fact that most banks have since increased their capital levels, that most analysts believe there's little room to be concerned this go-around. To see how our own analysts believe the following banks will perform, click on their respective links: JPMorgan, Bank of America, Citigroup, US Bancorp, BB&T, and Regions Financial.
In other news
Banks aren't the only blue-chip stocks that are up today. In fact, shares of Boeing (NYSE:BA), are leading the Dow today, up 2.6% at the time of writing. The aerospace company has been operating under a cloud over the last two months after global aviation authorities grounded its newest aircraft, the 787 Dreamliner, following a spate of battery fires.
Earlier today, the National Transportation Safety Board issued a report documenting the problems with the aircraft but "didn't resolve the central mystery of precisely what caused the blaze[s]." Investors are likely celebrating that nothing worse was discovered that could further prolong the plane's grounding.