Continued signs of improvement in manufacturing and housing support my case that the economy will see 3% to 4% growth in the second half of 2009. Data last week also showed that general inflation appears to be well under control. Still, initial unemployment claims went the wrong way (up) for the second week in a row, and earnings reports from Sears SHLD, Lowe's LOW, and Home Depot HD did nothing to dispel the notion that consumers are still clinging tightly to their hard-earned cash.   More 

The purpose of the stress test is to bring trust back to the markets.

Several observers--Calculated Risk and The Big Picture, for example--have pointed out that the scenarios were very conservative and that banks were allowed to bargain about the results, including (as Paul Kasriel points out) converting preferred equity into common equity--which in my book is not fresh money to recapitalize banks. All of these comments suggest that these observers, and I agree with them, have not gained an incredible amount trust in the financial markets.

Looking at how "prices" in the market for borrowed money have reacted, we can check the latest chart on corporate versus government spreads.   More 

The markets have staged an impressive, almost perfectly v-shaped rebound off the low in recent weeks. For instance, in the 18 trading days spanning Feb. 11 and March 9, the Dow shed about 1,341 points. But in the ensuing 18 trading days ended April 2, the Dow gained 1,431 points.

There's also some symmetry in the composition of the decline and subsequent rally, as shown in this table.   More