The broad indexes ended with small gains, while the KBW Bank Index (I:BKX) was up over 1% to close at 54.80, with all but two of the 24 index components ending the session higher.
Federal Reserve Chairman Ben Bernanke last week defended the central bank's "highly accommodative" monetary policy before Congress. The Fed has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008. The central bank is also purchasing $85 billion a month in long-term securities, in an effort to hold rates down. Since December, the Federal Open Market Committee has said in its monthly statements that the federal funds rate is unlikely to be raised until the U.S. unemployment rate falls below 6.5%, assuming inflation is kept in check.
Federal Reserve Vice Chair Janet Yellen in a speech on Monday said that the Open Market Committee "could decide to defer action even after the unemployment rate has declined below 6-1/2 percent if inflation is running and expected to continue at a rate significantly below the Committee's 2 percent objective.""A decline in the unemployment rate could, for example, primarily reflect the exit from the labor force of discouraged job seekers," Yellen said.
Dividend Season for Banks
Two major upcoming regulatory events could serve as a strong catalyst in the continuing recovery for bank stocks. The Federal Reserve on Thursday will announce the results of the 2013 stress tests on the 19 largest U.S. bank holding companies. The tests will gauge the banks' ability to withstand a " severely adverse scenario," that includes a 5% decline in real GDP this year, a 50% drop in equity prices and a 20% decline in property prices through the end of 2014. The banks need to show an ability to withstand a severe and immediate recession, while maintaining Tier 1 common equity ratios of at least 5.0%. All of the banks being stress tested are expected by analysts to pass with flying colors, with most members of the group seeing earnings improve in 2012, with rising capital ratios as well.