| Stocks Up On Positive Banking And Economic Data  Image: Bigstock Stocks closed solidly higher yesterday after erasing early losses.
Markets were under pressure early on after reports that TX Governor, Greg Abbott would temporarily pause the next phase of the state's economic reopening as Covid-19 cases increased. He stressed that he didn't want to "go backwards and close down businesses" and said the temporary measure would "help our state corral the spread until we can safely enter the next phase of the opening."
But markets started to bounce back.
Nobody at this point is calling for new lockdown restrictions. And in spite of Gov. Abbott's temporary pause, we're seeing plenty of cities and states moving forward with their reopening plans.
Then the positive economic news began to roll in.
Weekly Jobless Claims fell for the 12th week in a row.
Durable Goods Orders came in better than expected with new orders up 15.8% m/m vs. estimates for 10.0%. Ex-transportation was up 4.0% vs. estimates for 1.9%. And core capital goods were up 2.3% vs. estimates for 0.6%.
And Corporate Profits beat expectations with a smaller decline of -9.1% y/y vs. views for -11.1%.
Then we got reports that the big banks passed their Federal Reserve stress tests. Vice Chair Randal K. Quarels said that "the banking system has been a source of strength during this crisis" and that "our banks can remain strong in the face of even the harshest of shocks."
This allowed regulators to roll back the Volker Rule on these banks. And in doing so, it lifted the restrictions from certain types of trading (such as investing in venture capital) on their own behalf.
It also eliminated the need for setting aside reserve cash for derivatives trading between a bank's different units. That could potentially free up billions of dollars for other activities.
Traders cheered the news.
Although, after the close, the Fed did order banks to limit dividend payouts for Q3 to no greater than the average quarterly profit for the most recent four quarters, and precluded them from share buybacks in Q3 as well.
Nonetheless, with banks proving to be well capitalized, that was a great relief to the market and the financial system. And it underscores the strong foundation the U.S. economy has built up prior to the pandemic, and has maintained during, and after.
The economic rebound is underway. And we're seeing great pent-up economic demand being unleashed virtually everywhere.
That's why top analysts are calling for unprecedented GDP growth in Q3, more record growth in Q4, and the largest full year GDP growth in 2021 in 38 years.
This is history in the making.
So make sure you're taking full advantage of it.
Best, 
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