The stock prices rose dramatically yesterday of the banks that got negative marks in the government’s newly released stress tests.  Indeed, most stock prices went up. (See Wall Street Journal) Why?

Some say that the news is not as bad as initially feared, while others say that the numbers suggest that another big government bailout does not seem required. Financial reporters are notorious for making glib interpretations of market behavior — but why should that stop me from trying to detect unconscious factors at play.  Something odd is going on here.

I suspect that the relief now stems from the sense that someone is in charge.  The passing out of grades suggest that the teacher has come back into the room.  The authorities in charge seem to know what’s what — and what to do about it.  They are acting that way, and they are being perceived that way.

This is a weak sign of confidence — but it doesn’t take many of signs of confidence to affect the market when everyone wants to believe in an imminent recovery.