A few months ago I wrote an article about when the Fed had announced they would be giving the banks stress tests. I had also wrote it in a more sarcastic tone, with the pending implosion of the euro zone, that for now seems to be in the clear.
On Tuesday, the Fed released the results of these tests. Out of the 19 major banks, only four did not pass the tests and these banks saw their stock prices decline. However, a leak of news by JP Morgan before the session close propelled bank shares up overall.
The banks, by their asset value, all passed with the exception of Ally Financial. The other three banks that “failed” the tests, Citigroup, SunTrust and MetLife, although being able to maintain this capital, were not approved for share repurchases or dividend increases.
What this means for the markets: Investor confidence was restored in the banking system, many of the banks that passed the tests in retrospect, had been undervalued. As of Friday, March 16, shares of Bank of America (BAC) are up 22 percent since Tuesday when the Fed released the results and are up an astonishing 76 percent year to date.
Shareholders of the major banks that passed are getting a huge payday. Something to look out for could be the re-evaluation of the banks that currently failed the test. Citigroup (C), will have to renegotiate terms with the Fed if they want to raise their dividends or repurchase shares of their stock.
Retail sale news for February released, showed the biggest single month gain in five months. Data showed spending up 1.1 percent since last month. The Fed commented that the economic recovery was moderately better than expected. The Dow closed above 13,000 points, the S&P above 1,400 and the NASDAQ above 3,000.
The tech sector this week was led by Apple Inc. (AAPL) who saw their stock soar by nearly ten percent over a period of six days hitting their all time high of 600.01 before pulling back.
It was reported that Apple has been purchased by funds that dedicate themselves to dividend stocks, small and mid-cap stocks, and even bond portfolios. Apple is currently the world’s largest company and does not pay a dividend.
The stock for this week is Coffee Holding Co. Inc, (JVA),
What: This company manages wholesale coffee operations. Their last earnings release showed an 120 percent increase in sales. Starbucks (SBUX) last week announced they will begin selling their own single serve coffee brew, this shows the potential this market has. Not to mention McDonald’s (MCD) great success with its McCafe’s.
Term: 6-12 months.
Entry: Stock is up 77 percent since last week, not clearly indicative of a buy. They have announced a dividend payable on April 30th.