The large earnings miss from Lloyds TSB is getting most of the headlines today, but for all the “this is another Northern Rock!” warnings, Lloyds share price is still above the £2.70 low registered earlier in the month. RBS and Barclays are actually enjoying gains of around 4% today as investors cycle back into financials. There has been a lot of uncertainty over bank’s earnings from the likes of Merrill Lynch in the US to Lloyds TSB in the UK. Traders tend to hate uncertainty more than they hate bad news, and although the news from Merrill or Lloyds has been dire, at least market participants can now price in the bad news and start to be able to compute downside risk. This is much more preferable than the unknown and stocks often rise as a consequence.
The release of the news helps to foster the belief that the worst of the credit crunch is behind us, at least from the point of view of being able to estimate future earnings more accurately. The logic behind this can of course be questioned, but it is evident that investors are getting more confident in their bullish positions.
The better than expected US ADP employment report helped boost US markets earlier today as has the continued weakening the price of oil. It is debateable whether we have bottomed or not, but for now the bulls seem in control …… At least until the next big news item.
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