The Financial and Capital Markets

Expectations for economic and market conditions to slowly improve through the year (to the point where both turn positive heading into 2010) has fueled the aggressive rebound in capital markets. However, at some point, traders will have to ask themselves how long speculation can drive the market higher before a lack of earnings and investment starts to cloud the future once again. Such a realization may have been grown more opaque this past week with the release of so many major economic events. Acting as a barometer for the health of the world’s largest economy, the US non-farm payrolls report reminded traders that they are taking on risk when the recession is still in full swing. Perhaps the more critical weight for sentiment though was the Fed’s Stress Test results. Meeting expectations that 10 of the 19 would fall short of a reasonable cushion to an extended recession, the $74.6 billion in capital needed seemed tolerable. However, the belief that these figures were contrived is growing. Did the government lowball risk and what about the threat of ongoing defaults