By Christiana Sciaudone
Investing.com -- Bank stocks whipsawed Thursday, surging during the day but falling after hours as coronavirus infections increased across the U.S. and the Federal Reserve released its stress test statement. The Dow was up almost 300 points to 25,744.71, reversing earlier losses.
Texas reversed plans to reopen after Houston’s intensive-care units reached maximum capacity, while California, Arizona and Florida each saw a surge in new Covid-19 infections. Electives surgeries in Texas's biggest cities have been suspended. In California, Governor Gavin Newsom also declared a budget emergency because of Covid-19 and Disney's delaying its July 17 reopening of Disneyland. And more bad news: Macy’s is laying off 3,900 corporate employees, the government sent $1.4 billion in stimulus checks to dead people and unemployment came in above 1 million for the 14th week in a row. Still, the Nasdaq rose for a ninth day in a row.
Here are three things that could affect markets tomorrow.
1. Banks, Banks and More Banks
Banks from Citigroup (NYSE:C) to Bank of America (NYSE:BAC) led the charge today, surging thanks to the loosening of the Volcker Rule, which will allow for riskier trades and investments in private equity and hedge funds. The easing of financial crisis-era rules on trading activities, including relaxing margin requirements for certain types of trades, should free up capital.
But after the market close, bank stocks fell on the results of the Fed's annual regulatory stress test. Share repurchases have been suspended for the third quarter and bank dividend payments will be capped at their current levels, with payouts based on a bank's recent earnings. Banks have to reassess their capital plans and may face another stress test later this year, the Fed said in announcing the results of its annual stress tests.
The Federal Reserve's annual stress test of big banks, which started in 2009, is supposed to show what happens to their balance sheets – in terms of losses and capital levels – under an extreme hypothetical scenario. The results give regulators a sense of whether a bank's plan to pay dividends and buy back shares will still leave enough of a buffer behind for it to endure a crisis.
2. U.S. Personal Income & Spending
Personal income in May is expected to have declined by 6% compared to a jump of 10% for the previous month as stimulus checks run out, according to Bloomberg. Spending figures may show increased spending of 9% compared to a 14% retraction in April as some U.S. states started to reopen. Congress may approve a second round of stimulus checks in July.
3. Covid-19 Shuttering Economy, Again
With infections surging in swaths of the U.S., states are closing back down and any personal spending bump from May is likely to come back down. Apple (NASDAQ:AAPL) closed 14 stores in Florida. Darden Restaurants Inc (NYSE:DRI). was one of the few big bright spots in the market today, with CEO Gene Lee shrugging off the impacts of the virus saying it hasn’t had much of an effect on business, but the company’s keeping an eye on the new rise in infections.
Yelp (NYSE:YELP) reported that of the 140,000 closures of the businesses on its app since March, 41% are permanent closures. The company also noted that diners had been returning to restaurants in June, as well as malls and wellness centers, like spas.
Why are markets stable amid increasing infection rates? BlackRock (NYSE:BLK) CEO Larry Fink told CNBC that the world is more accepting of higher coronavirus rates.
“I think the market is probably a little ahead of itself at this time, because I still believe we are witnessing real tragedies in the small and medium businesses,” Fink said.