Markets extend Recovery Effort to 2nd day Wednesday

Major Market indices got another substantial boost Wednesday as stocks across the board rose higher led by Technology and the Financials. The Dow rose more than 330 points while the Nasdaq rose over 80 points. On the Canadian side the TSX rose more than 260 points.

Investors seemed to rekindle hopes for another Rate Cut as the Federal Reserve statements hinted at the possibility. On the recovery path were major and sub-prime financial players such as Citigroup (C), Bank Of America (BAC), Washington Mutual (WM), NovaStar Financial (NFI) and Countrywide Financial (CFC). Traders were keying on news tidbits that helped ease doubts about liquidity problems for the Financial companies particularly from CFC, which said that its "Cash Lines" are intact. That didn't help the embattled lender on the day very much but it spurred the thinking that the bigger players will turn the ship around soon enough, given their sizable asset and normal banking customer base. Citigroup and WM were among the big turnarounds today, moving almost 7%, while BAC was up 4.5%.

The Canadian markets saw a big rebound in the banking sector as well as the major Canadian Financial Institutions like Royal Bank (TSE:RY), CIBC (TSE:CM), Bank Of Nova Scotia (TSE:BNS) and TD Bank (TSE:TD) were all high percentage gainers.

The bigger news on the day, sparking the rally was talk of the Federal Reserve and its plans, going into the next Rate meeting. That meeting is set to take place in early December and Investors hope comments of "offsetting policy" and the rise of commodities such as Oil and Gold will lead to another cut. The long term effects of a rate cut will also produce negatives but at this point Traders are concerned about having the necessary shorter-term buying catalysts going into the end of the year.

Bulls End The Market Week in Control

A strong finish to the week for American Markets as investors piled back into stocks after some surprising news. July New Home Sales were stronger than expected and that lifted sentiment across the board. Deep in the midst of a so-called credit crunch and fears of a creeping recession the numbers highlight that through it all the economy is still stable and healthy.

The Dow went forward 140 points (1%) while the Nasdaq and S&P fared slightly better. On the Canadian side positive bank earnings at Toronto-Dominion (TSE:TD) led the TSX index higher but Royal Bank (TSE:RY) faltered despite profit increases. On the American side brokerages went higher together today following the general market despite Morgan Stanley (MS) cutting its retail sales outlook.

Investors have seemed to calm themselves of fears of recessions and credit crunches for the time being, which bodes well for the sustainability of the recent recovery of the major indices. The Dow sits about 750 points from its highs of the year meaning that the losses from those highs now sit at only about 5%. I believe its safe to say that the markets have stabilized the so-called correction, with the help of the Fed, and are now looking ahead to future interest rate discussions.

Money Holders: The Bank Story

All this excitement over the sustained tech rally combined with the lingering negative sentiment from the sub-prime mortgage meltdown has given the Bankers a bad rap.
Year to date the major bank stocks in America are either flat or down, all this while the market rallies longer and later in the year than usual.
And banks are typically very solid dividend plays, so what gives with the lack of respect?

It's clear that once this sub-prime fiasco is put to bed the industry can lift itself from the under performing rug and enjoy the spoils that investors have bestowed on seemingly the rest of the market. Earnings announcements are coming this week from JP Morgan Chase (JPM), Merrill Lynch (MER), Banc Of America (BAC) 4.5% yield, Citigroup (C) 4.1% yield, and Wachovia (WB) 4.3% yield

The chance to get in on these major banks is now as the forward P/E's of BAC, C and WB are below or right at the magic 10 multiple.

On the Canadian side of the market, the banks have performed very well over the last 6-8 months, however these gains are being put under pressure due to raised interest rates on inflation fears, the continuing strength of the Canadian Dollar, and simple valuations. However as these Canadian banks have come off their highs, buying opportunities are available.
CIBC (CM) hit a 52-week high of $107, while now sitting at $98
Royal Bank (RY) hit a 52-week high of $61, now sits at under $58
Similar patterns can be seen for Bank Of Montreal (BMO), TD Bank (TD) and Bank of Nova Scotia (BNS), although the latter 2 have not fallen off their highs as much as their peers.

This industry is lying in the weeds and it seems ready to join the party in the coming months. And while the waiting game is on, it's always a good thing to cash in on those +4% yields.

Disclosure: Author is long BAC, C, WB, RY