US financials led the global sector rebound when Citibank and other banks said they were profitable.  Then came the change in FASB rules for mark to market for bank assets and finally the bank profits which reflected some creative accounting.

For this "baby bull" - for want of a better term, rally to be sustained, the much awaited Fed stress tests of 19 US banks should reveal no negative surprises.  My sense is that the delay in release of the test results by two days because the findings are apparently being disputed by some banks could signal its more negative than expected.  Latest wire reports from informed sources now suggests that 10 of 19 banks need more capital and included in this list would be the likes of CitiGroup, Bank of America, Wells Fargo and even JP Morgan.   This may not augur well for their stock prices because of the dilutive effect fund raising from placements or rights issue can have on their stock prices.

I am more interested in what the stress tests will reveal (if they do) on the amount of toxic assets that these banks have on their balance sheets and also the kind of scenarios that the Fed used during the tests from normal to conservative.  This will give a sense of the downside on the macro economic data - so that we can see if its been discounted by the stock market.

Others such as Warren Buffet feel that the Stress tests are meaningless because you cannot use a broad brush to evaluate banks without taking into account that business profile and asset quality.  Another group, which also feels that the stress tests will reveal nothing, take the view that the US Government will not go into the details of the banks that need more capital - and by keeping this vague will not threaten the confidence in the financial sector that the markets have been building on in recent weeks.