I'm no fan of the banks. I don't like their connection with Europe. But I do like it when they go up, particularly the regionals, because they react to trends in both residential and non-residential real estate.
The latter? I think it's good. I think it is integral to the nascent recovery we are having. Employment seems to be coming back. That's the takeaway of the weekly jobless claims and the ADP data number. I suspect that the Labor Department's report tomorrow could be benign too. When you get employment growth, you get the end of the trajectory of housing defaults. If you have a job, you tend to pay your mortgage.
But there is more to this rally than that.
We haven't built much of anything around this country in a long time, whether it be homes or non-residential construction. We had a glut of both. I believe things are changing, perhaps for both. I can see housing starts, after dropping to levels from when the country was half this size, doing better.
Non-residential construction has me most excited, though. I keep hearing anecdotally that the need for buildings has returned. The non-residential REITs have been very strong.
We also know that after a torturous gap, the infrastructure build may at last be here. We need it. There's plenty of demand there.
We also know we have several regions in this economy that have been awful, particularly the Florida region. That's coming back. In fact, the whole Southeast is coming back. (Makes sense that Martin Marietta Materials (MLM) is pursuing Southeast aggregate dominator Vulcan Materials (VMC), doesn't it?)
And we know there is agricultural demand. Again, that needs money, and the farmers can pay for it.
All of these can spur regional lending.
When you add in the redemptions for the hedge-fund managers who own big banks and had to sell them, you can see the rally.
The thing that matters it that the S&P is riddled with banks. It is hard to take the market down big with banks holding in. That's the most positive thing I see on my screen for the moment, and it is worth a callout for certain.
We know that the bank stocks can go down in a flash of a headline. Some senator attacks credit cards. The new consumer protection head rails against debit cards or too-high credit-card interest rates.
But the stabilization of the financials at a time when Unicredit bravely raised money at a horrible level, revealing how misleading those bank prices are over there, is good news no matter what has spurred it.
The best sign in an otherwise sea of red on my screen today.