MarketView for March 20

Summary

After several weeks of soft economic data attributed to harsh winter weather, labor market data on Thursday showed the number of Americans filing for jobless benefits were near three-month lows last week. At the same time, a report from the Federal Reserve Bank of Philadelphia indicated that factory activity in the Mid-Atlantic region rebounded in March, suggesting economic momentum may be on the upswing.

Financial shares, which are tied to the pace of economic growth, were among Thursday's largest gainers, with the S&P financial sector index up 1.7 percent. After the close, the Federal Reserve said 29 out of 30 major banks met the minimum hurdle in its annual health check.

JPMorgan Chase gained 3.1 percent to close at $60.11, rising above $60 for the first time since April 2000. Citigroup was up 2.6 percent to $50.22.

In her first press conference as chair of the Federal Reserve, Janet Yellen on Wednesday indicated that the first increase in interest rates could come in the first half of next year. She estimated the "considerable period" between the end of the Fed's stimulus and its first rate increase at possibly six months.

Volume is expected to surge on Friday as options expiration takes place alongside multiple index rebalances. Credit Suisse estimates $14 billion in gross trading will stem from the S&P 500 index rebalance, with another $6 billion coming from rebalancing in other indexes.

Lennar reported a sharp jump in its first-quarter profit, helped by higher prices. The results came a day after KB Home posted similarly strong results in a bullish read on the housing market. Housing data also showed existing home sales at a 19-month low in February. Lennar's shares fell 2.5 percent to $40.32 and KB Home lost 2.7 percent to $18.21.

Jabil Circuit forecast 2015 core earnings above Street's estimates as the struggling contract electronics maker expects to recover from the loss of its business with BlackBerry.  Jabil Circuit's shares ended the day down 2.8 percent to close at $17.74.

On the downside, the Nasdaq's gains were limited by weakness in large-cap internet shares. Amazon.com fell 1.1 percent to $368.97 while Facebook was do 1.9 percent to $66.97.

Volume was light, with about 5.9 billion shares changing hands on the major equity   exchanges, a number that was below the 6.7 billion average so far this month, according to data from BATS Global Markets.

Economic Data Mixed

The number of new claims for unemployment benefits held near three-month lows last week and factory activity in the Mid-Atlantic region accelerated in March, indicating the economy was pulling out of recent weather-induced lull. However, the other side of the coin suggests that housing could take a while to regain strength. Home re-sales fell to a 1-1/2 year low in February, marking the second month of decline.

The Labor Department reported Thursday morning that initial claims for state unemployment benefits increased by 5,000 claims to a seasonally adjusted 320,000 claims. In a separate report, the Philadelphia Federal Reserve Bank said its business activity index rebounded to 9.0 in March from -6.3 in February. Any reading above zero indicates expansion in the region's manufacturing.

An unusually cold and snowy winter disrupted economic activity early in the first quarter, and slowed job growth. Federal Reserve Chair Janet Yellen said on Wednesday harsh weather had played an important role in the economy's weakness in the first quarter, adding that labor market conditions continued to improve.

The four-week moving average for new jobless claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, hit its lowest level in more than three months last week. Last week's claims data covered the period for the government's nonfarm payrolls survey for March.

Claims fell 14,000 between the February and March survey periods, suggesting further improvement in job growth, which had slowed at the end of 2013 and the beginning of this year because of severe weather.

In another report, the National Association of Realtors said sales of previously owned homes slipped 0.4 percent to an annual rate of 4.60 million units. That was the lowest level since July 2012. Home re-sales, which peaked in July, have declined in six of the last seven months.

While bad weather has hampered sales, housing market fundamentals have weakened somewhat since last summer following a run-up in mortgage rates. High borrowing costs and steep prices have made houses less affordable for many Americans.

The median price for a previously owned home rose 9.1 percent in February from a year ago. In addition, there have not been enough properties on the market for sale.

All Large Banks, but One, Pass Stress Test

The nation’s largest banks have enough capital to withstand a drastic economic downturn, the Federal Reserve said on Thursday, announcing that 29 out of 30 major banks met the minimum hurdle in its annual health check.

All of the big banks except for Zions Bancorp stayed above the 5 percent requirement for top-tier capital in the latest round of stress tests.

The tests are designed to show how banks would weather a financial collapse similar to the 2007-2009 crisis. Banks had to prove how they would cope with a halving of the stock market, and the eight largest banks had to weigh the impact of the default of their biggest trading counterparty.

Several firms appeared to disagree with the Fed's scores. Bank of America and Wells Fargo released the results of internal stress tests that showed them performing better than they did under the regulators' tests.

Stress tests are closely watched by financial markets as a sign of the industry's health, and also because the Fed can reject banks' plans to return capital to shareholders if they think the banks are not strong enough to carry them out.

European regulators plan to conduct their own stress tests later this year, following a broad review of the asset quality of banks on the continent.

The Fed will announce on March 26 which banks' plans to pay dividends or buy back shares were approved.

For the results released on Thursday, the Fed assumed banks would keep dividends at their current levels and buy back no shares. This release sets off several days of speculation about whether banks with relatively low capital ratios will be allowed to increase dividends.

Zions was the only bank to miss the minimum, with a tier 1 capital ratio of 3.5 percent in the most severe stress scenario. Zions said last month that it expected to resubmit its capital plan due to the sale of some securities that contributed to losses under the toughest stress scenario.

The other 29 banks stayed above the minimum levels. But M&T Bank came in relatively low, at 5.9 percent, and Bank of America's tier 1 ratio was 6 percent.

Bank of New York Mellon, Discover Financial Services and State Street had the highest capital ratios. Discover announced shortly after the release on Thursday that it planned to increase its quarterly dividend.

Capital ratios are not always clear indicators of whether the Fed will approve a bank's capital plan. Last year, regulators directed JPMorgan Chase and Goldman Sachs to redo their proposals due to concerns about their capital planning processes.

The group of 30 banks' aggregate tier 1 common capital ratio dipped to 7.6 percent under the toughest stress scenario. That ratio was 5.5 percent at the beginning of 2009, the Fed said.

This was the first year that Zions and 11 other banks, among which were Comerica and Discover, participated in the full stress test regime. The other 18 banks, among which were JPMorgan, Citigroup and Morgan Stanley, participated in previous rounds. Together, the 30 banks accounted for about 80 percent of total banking assets in the United States, the Fed said.