Mixed news from the markets provided more fodder for our pundits to build on the argument that while a bottom may be forming, less bad indications still aren t good enough for a real rally.

Tobias Levkovich at Citigroup noted April 20 that many investors are seeing strong signs of an economic bottoming, but that policy missteps, falling earnings and a collapse in commercial real estate could derail the equity markets. While the threats remain, there was also a willingness to embrace good news.

One sector that got considerable debate this week was banking. Strong earnings news from Goldman Sachs (GS), JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC) rallied major indexes and were seized on as positive signs. But many market watchers and strategists focused on the looming results of the Treasury Department s stress tests that will assess bank capitalization. The tests will have a major impact on the pace of recovery.

Bank analyst Richard Bove of Rochdale Securities continued a longstanding theme in his criticsm of the tests and the program. No one, it appears, has any faith in any American bank, he wrote. That was followed by a report entitled How to Create a Depression, in which he said the government s intervention had created a potentially untamable force. It is clear that the Treasury has started something that could have dire impacts on the banking industry and the economy -- something that was never needed in the first place, he wrote.

He wasn t alone in criticizing Washington. Societe Generale strategist James Montier wrote the U.S. stress test on banks looks like a farce in an April 20 note, which said the evaluation can only be described as a stress-less test.

But not everybody thought the White House was off track. When Goldman Sachs turned in massively better than expected earnings in mid-April, it also raised money with the express aim of repaying the government's Trouble Asset Relief Program, or TARP. The announcement provoked varied reactions and forecasts for how banks will handle the results of the stress tests and their obligations to TARP.

The Obama administration is reluctant to take back the money for fear that the bank will fall into future trouble in later quarters, a responsible, let s be safe rather than sorry position, Strategas policy strategist Daniel Clifton wrote Tuesday.

More broadly, the markets are in the midst of what Ed Yardeni, founder of Yardnei Research, called a relief rally. Numerous economic indicators weren t as bad as feared, he wrote Thursday. That s fine as long as the fundamentals that drive earnings start to actually improve, and not just worsen at a slower pace.

With conflicting signals in the stock market and the economy, Morgan Keegan economist Donald Ratajczak s April 20 note said investors should be cautious of the hype. Clearly, conditions are improving, he said. Nevertheless, claims that we are in recovery are very premature.