Markets rally as Meredith Whitney gives Goldman her vote

Bank shares led a Wall Street rally today - and who was responsible for moving markets to buck the past month's downward trend? Meredith Whitney, an influential market analyst, upgraded Goldman Sachs shares to 'buy' from 'neutral', causing the group to climb 4.12 per cent by 4pm BST. This is the first time Whitney has boosted banking shares in this way since founding her Meredith Whitney Advisory Group earlier this year.

Whitney's influence derives in no small part from her status in the media as the "dollar dominatrix" who predicted the demise of Citigroup, America's biggest bank, in a legendary report in October 2007. Whitney was shunned when she made that forecast, but credit crunch-depressed investors seem more inclined to believe today's good news than her previous forecasts of doom.

The reason for her optimism is that tomorrow, Goldman Sachs is expected to post a profit of $2.2bn according to Bloomberg - the bank's largest profit since 2007 at the height of the credit bubble. Whitney told her clients the bank's shares could reach $186 in the next year from $141.87 on July 10 - significantly higher than the average market analyst's prediction.

But increases across banking shares today following her positive comments on the prospects for Bank of America and her belief that banks could rise 15 per cent in the short term should not be taken as further evidence of 'green shoots' or that Whitney herself has abandoned her bearish outlook. She is still cautious on the prospects for other financial groups and the US economy as a whole.

More worryingly for taxpayers is Whitney's rationale for Goldman Sachs's continued improvement into 2012. She says the financial group will benefit from governments continuing to issue debt to plug holes in their budgets.