The Federal Reserve's financial stress test results increase risk of credit tightening and dividend cuts, and that should make most investors uneasy about buying banks. Fiscal and monetary policy could ease the burden of rising delinquency and default rates resulting from job losses and slower economic growth, but investors hate uncertainty, and without clarity, financials remain too risky to buy relative to other sectors and industries.
A bank bust?
Yesterday, the Federal Reserve told banks to rein in plans for dividend increases and stock buybacks following stress testing that evaluated their ability to weather a