Stocks Post Solid Gains on the Back of Strong Banking Sector Performance

U.S. stocks were back in focus on Wednesday after a couple of lackluster trading sessions. All three major indexes posted solid gains on the back of an impressive rally in U.S. bank stocks.

Leading the way was the NASDAQ Composite which closed at 6232.64, up 86.02 or +1.40%. The benchmark S&P 500 Index settled at 2440.69, up 21.31 or +0.88% and the blue chip Dow Jones Industrial Average ended the session at 21454.61, up 143.95 or +0.68%.

Banking sector stocks were up 1.4 percent ahead of the release of the Federal Reserve’s stress test results. Stocks were also supported before the opening by dovish comments from the European Central Bank which said the markets over-reacted to remarks by ECB President Mario Draghi on Tuesday. The rise in banking stocks also spread to the technology sector which helped drive up the NASDAQ Composite.

As far as Draghi is concerned, a source familiar with Draghi’s knowledge told Reuters that Draghi intended to signal tolerance for a period of weaker inflation, not an imminent policy tightening.

Breaking News

After the stock market close, the Fed approved the capital return plans of all 34 banks, the first time the whole industry passed in the seven-year history of the tests. The Financials Select SPDR ETF (XLF) climbed more than 1 percent in after-hours trading.

The impact of the news was almost immediate with Citigroup doubling its quarterly dividend to 32 cents. Citi also joined JPMorgan in announcing their biggest share buybacks ever.

Economic News

It was a mixed day as far as U.S. economic reports were concerned. The Goods Trade Balance came in at -65.0 billion. This just missed the -66.2 billion forecast. It also came in lower than the previous read. The slight narrowing of the deficit was actually good for the U.S. Dollar.

Preliminary Wholesale Inventories were a little bearish, increasing by 0.3%, higher than the 0.2% forecast. Last month’s number was revised from 0.1% to -0.5%.

Pending Home Sales were a big disappointment, falling 0.8% versus an estimate of a 0.9% gain. Last month’s report came in lower at 1.7%. Traders said fewer buyers signed contracts to buy existing homes in May, likely because they can’t find or afford what they want.

Crude Oil

The short-covering rally continued in crude oil with the U.S. West Texas Intermediate and international benchmark Brent futures contracts closing more than one-percent higher.

The rally was driven by a government report that showed U.S. gasoline stockpiles fell more than expected. The report also showed U.S. crude inventories rose, but less than Tuesday’s American Petroleum Institute’s inventories report suggested.

According to the U.S. Energy Information Administration, crude inventories rose by 118,000 barrels in the week to June 23 as refineries cut output. That compared with analyst expectations for a decrease of 2.6 million barrels.

The EIA report also showed gasoline stocks fell by 894,000 barrels, compared with analysts’ expectations for a 583,000-barrel drop.