Barring a massive change of direction or a terrible piece of news outside the financial world, all eyes in the financial world and most on Main Street will be fixated on the results of the bank stress tests. The results are set to be released tomorrow (May 7th, 2009) for the 19 largest banks at the epicenter of the nation’s financial crisis. The stress tests are designed to measure what kind of capital buffer the banks have in the case of an economic environment that is even more challenging than anticipated. The Wall Street Journal Online offers a terrific press release from the Federal Reserve which is an extensive FAQ writeup of the bank stress test details. Most of the questions that the common investor will have are answered quite well in that release.  

For the time being most investors don’t seem to be concerned about the stress test findings, given that the stock market, and the financials in particular, have rocketed higher in recent weeks. Exactly how much data is made public is unknown, and precisely how each company will be forced to respond is a question that will take a while to answer. As of now most people are seeing the bank stress as a short-term important event that will move the market, but it certainly has the potential to be much more than that. If the stress tests are conducted thoroughly and help the overall banking sector shore things up in the long run it could be very bullish. If the stress tests leave many more questions than they do answers the market is liable to sell on the news, even it isn’t all bad.

The bottom line is that the bank stress tests being released May 7th will be extremely important to the overall economy and the stock market. JP Morgan stress test results, Goldman Sachs stress test results, Wells Fargo stress test results, and many others will be at the forefront of the news for quite some time. Let’s hope this can help the financial system avoid even more pain in the future.

One has to wonder what on earth the market will make of the next few trading sessions before the unveiling of the stress test results on May 4th. There are several pretty significant issues right now with the stress test. The first and most important of which Michelle pointed out the other day in her piece “What the hell is stress test?” The truth is there are a lot of people who don’t understand what the stress test is doing. The stress test is being based on computer generated predictions of where the economy may be in the coming months and years and then our government is left to test how well the banks could stand up in a normal scenario and in the worst case scenario. The overall idea of the stress test is a good one, but there certainly are questions about exactly how everything will be released.

At this point we don’t know what kind of details will be released as far as the government’s findings on each financial company. We do know that the stress test results  are due out on May 4th for the 19 biggest banks, and May 4th will certainly provide a great amount of drama in the markets. The stress test will raise some very important questions about the financial system and whether it can continue to run without a major overhaul in certain areas.

As the bank stress test information is released a whole lot of volatility should be expected as investors really have no idea what to expect. Investors are anxious to receive the results, but then again they are worried that they may not like what they are about to see. All in all my hope is the stress test will prove to be a step forward, but don’t be surprised if there is a lot of uncertainty before it all becomes more clear.