Stocks Spring Forward, With Trepidation

If the brokers manage to make good on, make up for, or explain away whatever hits they've taken due to their subprime exposure, the market may weather the storm without a credit crunch or other financial crisis. Credit spreads on corporate bonds can stay tight and lending standards can remain somewhat lax.

But if the world's marquee financial institutions trip up even more on the subprime story, investors may run farther and faster away from risk, as institutions respond by offering stricter access to capital, as Countrywide Financial (CFC Quote) announced Monday.

For now, however, the credit crunch is still not under way. While residential mortgage lending standards have tightened somewhat, there is no contagion. Mortgage refinancing applications rebounded last week, and the Federal Reserve released data late Friday that bank credit expanded rapidly in the week ended Feb. 28, notes Tony Crescenzi, chief fixed-income strategist at Miller Tabak, and RealMoney.com contributor.

Bank credit increased by $34 billion in the week to $8.41 trillion, following five weeks of other large gains. Crescenzi adds that bond issuance last Wednesday and Thursday totaled $20 billion, or five times average.

Also, the brokerage stocks have not exactly outperformed lately -- perhaps accounting for the subprime debacle. Indeed, most have done far worse than the broad market and their related indices. Goldman was up 0.5% Monday, but it is down 8.3% from its Feb. 21 peak; while Lehman and Bear also rose Monday, they have both dropped 10.7%. Morgan Stanley, up a fraction Monday, is down 10% from its 2007 peak, while Merrill Lynch(MER Quote) has slid 14.4%, but was up 0.7% Monday.