Wall Street indexes pointed to a lower open on Tuesday with investors set to book profits a day after the S&P 500 turned positive for the year, while financials were in focus as the market awaits stress tests results from the government.
According to a source familiar with official talks between banks and regulators, about 10 of the 19 largest U.S. banks that have been put through government stress tests will be instructed by regulators to raise more capital.
The banks have been negotiating with the regulators about the depth of their capital needs, should the recession prove to be deeper and longer than anticipated.
Investors were hopeful that the amount of capital banks need to raise will be manageable but some jitters remain over any negative surprises that could be revealed.
Right now the market is in a heightened sensitivity mode where any information will be absorbed, processed and acted on in a very quick manner, said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.
Although the market appears to have discounted much of the bad news given the positive behavior of the financials, there remains an uneasy queasiness about what will be said (in the stress tests), Bakhos said.
Federal Reserve Chairman Ben Bernanke will testify on the economy before the Joint Economic Committee at 10:00 a.m. EDT. Investors will be keen for any new indication the recession is easing to provide support for recent optimism over the economy.
S&P 500 futures fell 3.80 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 24 points, and Nasdaq 100 futures were off 3 points.
The S&P 500 is now up 34 percent from its 12-year closing low on March 9 but it is still off 42 percent from its October 2007 record high.
Among financial shares, Wells Fargo
The final results on the stress tests are expected to be reported on Thursday. Any news that points to more stabilization in the sector will be a positive for investors as authorities have said shoring up the financial system is key to reviving the recession-hit economy.
Dow component Kraft Foods
On the data front, a reading on the Institute for Supply Management's nonmanufacturing index for April is expected later in the morning.
Stocks rose on Monday, driving the S&P 500 into positive territory for the year as investors bet banks' capital shortfalls may be manageable and housing data fueled hopes the recession is easing.
(Editing by Theodore d'Afflisio)