Banks have made quite a recovery since the financial crisis and the Federal Reserve noticed in their latest round of stress tests.  Financial stocks and exchange traded funds (ETFs) celebrated the news by moving up about 1% for the day.

Banks have undergone extensive testing since January by the Fed and passed a second round of stress tests, reports Eric Dash of the New York Times.  Once they passed announcements were made of a return of dividends to shareholders and stock repurchases.

Goldman Sachs announced it is buying back the $5 billion stake it sold to Warren Buffet. JPMorgan Chase will pay 25 cents a share each quarter, up from 5 cents in the first quarter, and will buy back stock worth $15 billion.  Bank of America and Citigroup said they would hold off on until later this year or next to increase dividends.

This wasn’t the end of the testing.  This is going to be an annual event and there is still another round to go.  But more tests or not, the markets took this as a good sign that the banks are recovering.

  • SPDR Financial Select Sector (NYSEArca: XLF) – up 1.4% on Friday; down 5.3% over the past month
  • iShares Dow Jones U.S. Financial Services Index Fund (NYSEArca: IYG) – up 1.0% on Friday; down 5.7% over the past month

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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