Stocks are positioned to extend their winning streak today despite disappointing news out of both Europe and China. The Dow Jones Industrial Average (DJINDICES:^DJI) has now closed higher on every day in March, up a cumulative 2.7%. If the blue-chip index finishes up once again, it will have done so for seven consecutive days, setting records throughout the run.
Today's rally is fighting against growing economic headwinds. At the end of last week, ratings agency Fitch Ratings downgraded Italy's credit rating to three steps above junk status. And today, data showed that the country's gross domestic product contracted by 0.9% in the final three months of last year. On a year-over-year basis, the figure was 2.8% down from the final quarter of 2011.
"I think the Italian downgrade is acting as a bit of a wake-up call," a London-based economist told Reuters.
In China, data revealed that inflation is rising while growth in industrial production and retail sales came in below expectations. As my colleague Dan Dzombak discussed in more detail, inflation in February increased to 3.2%. Meanwhile, the growth rates of industrial production and retail sales fell to 9.9% and 12.3%, respectively. With respect to the latter figure, economists had forecast growth of 13.8%.
On the heels of this news, the Dow is up by 38 points, or 0.26%, with about an hour left in the trading session.
In terms of the index's best-performing individual components, Boeing (NYSE:BA) is leading the way. Shares in the company are 1.9% higher after the aerospace giant announced that it has finally identified the problem with its flagship 787 Dreamliner. Two months ago global aviation authorities grounded all 50 of the aircraft then in use after lithium-ion batteries on two separate planes caught on fire.
Speaking at a conference of aviation financiers today, Boeing's marketing vice president Randy Tinseth said, "It is a solution that we believe provides three levels of protection for the airplane and it's a solution that we're confident will ensure safe and reliable service for the 787 in the future."
Shares of both JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) are also rallying today after the banks discovered last week that they had passed the Federal Reserve's annual stress test mandated by the Dodd-Frank Act. At the end of this week, in turn, investors should know whether the banks have also gotten approval to increase dividend payouts and/or initiate share buyback programs.
Last week, fellow too-big-to-fail bank Citigroup (NYSE:C) announced that it will ask the Fed for permission to buy back $1.2 billion in shares. The bank is still smarting from having a similar request denied last year -- many even believe the denial was a major contributing factor in former CEO Vikram Pandit's forced resignation. As a result, the planned repurchase this time around is designed only to "offset estimated dilution created by annual incentive compensation grants."
In addition, the Financial Times reported that JPMorgan has "requested a share buyback of about half of last year's [$15 billion program]" as the nation's largest bank by assets seeks to shore up its "fortress" balance sheet in the wake of the London Whale scandal. While the bank ended 2012 with record profit, its reputation was nevertheless tarnished. The bank has long been considered the best at risk-management. When the estimated $6 billion loss came to light, in turn, this reputation was called into question.
How this week's capital-allocation requests are received by the Fed will largely dictate the direction of financial stocks over the foreseeable future. To see a list of the banks that passed and the one that failed, click here. And to read all about the stress tests, click here.
John Maxfield owns shares of Bank of America. The Motley Fool owns shares of Bank of America, Citigroup Inc , and JPMorgan Chase & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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