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Prieur Perspective: "New Bull Market" Over Before It Begins?


Breaching March 9 lows could mean further downside movement.

On Friday, Federal Reserve regulators released a white paper outlining the criteria they used to assess the financial health of the nation's 19 biggest banks. On the same day, they also briefed the banks about how their companies had fared in the examination. The banks will have until Tuesday to dispute any of the results before they're made public on May 4.

According to the Financial Times, senior Fed officials said US authorities will ask some of the country's biggest banks to raise more capital following the completion of bank stress tests. The officials also indicated that a second, larger group of banks will be asked to improve the quality of their capital by increasing their amount of common equity.

Last week, investors' mood was also influenced by tentative signs of economic stabilization in a number of countries, and a barrage of earnings reports - generally better than feared. As the equity rally ground to a halt on some bourses, the US dollar and government bonds offered little safety appeal and edged weaker. Gold, on the other hand, advanced after China revealed it has almost doubled its gold reserves since 2003. Treasury Inflation Protected Securities (TIPS) also improved on the week.

The performance of the major asset classes is summarized by the chart below, courtesy of

After rising for 6 consecutive weeks, global stock markets experienced a volatile week, including the worst losses since early March on Monday. In the end, the MSCI World Index gained 0.1% (YTD -4.1%) on the week and the MSCI Emerging Markets Index 0.7% (YTD +14.2%), but the S&P 500 Index shaved off -0.4% (YTD -4.1).

As far as the earnings season is concerned, Bespoke indicated that 156 S&P 500 companies had reported earnings by Thursday, beating estimates in 67% of the cases. Also, so far, earnings are down 16.6% versus the first quarter of 2008. While down, this is much better than the -37.3% expected at the start of the earnings season. "The earnings season still has a long way to go, but the current trend has investors optimistic," said Bespoke.
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