How will the stress test affect bank stocks. How does the stress test affect JP Morgan stock? Will the stress test affect financials stocks. Are bank stocks good dividend paying stocks to buy?
First of all let us discuss what exactly the stress test is. The stress test is a fictitious worst-case scenario instituted by the federal government and applied to the balance sheet of many of the major banks. Depending on the results of the balance sheets on the portfolios of the banks in relation to the stress test this controls many of the things that the banks can and cannot do. Especially when it comes to how the banks and their publicly traded stock give back to individual investors.
In essence the stress test creates a clear class of winners and losers in the bank stocks and financials stocks . For instance if the bank passes the stress test, it will be allowed to issue dividends or raise dividends. This gives them a chance for getting on a list of the best dividend paying stocks on somebody’s newsletter or screener. Whereas banks who cannot pass the stress test cannot do these type of activities.
So look for the stress test to shift the money flow into banks that can pass and jump through the government hoops, because eventually these stocks will be the ones that have the most flexibility to really drive their stock prices up in the stock market and pay dividends.