Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Stocks Could Tumble on Wednesday

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Stocks had a strong showing today, with the Dow Jones Industrial Average (DJINDICES: ^DJI  ) and the broader S&P 500 (SNPINDEX: ^GSPC  ) gaining 0.6% and 0.7%, respectively. In fact, the S&P 500 closed at its highest value since Election Day and just 2.6% below the post-2007 closing high of 1,465.77 achieved on Sept. 14. Who would have thought we're less than three weeks away from a "fiscal cliff"?

Fed watch: According to a Bloomberg survey, 48 of 49 economists expect the Federal Reserve to announce tomorrow that it will replace Operation Twist, which ends this month, with a new program of monthly Treasury bond purchases of $45 billion that would add to the existing QE3 bond-buying program. Needless to say, if the same degree of consensus is embedded in stock prices, the market will have a rough day tomorrow if the Fed doesn't announce this. The Fed made this market; we just invest here.

The micro view: While we're on the topic of the risks associated with the Fed's post-crisis policies, the Financial Times reported over the weekend that FDIC data shows that U.S. banks' structured finance investments are now at their highest level since mid-2009, the earliest date at which the FDIC began breaking these numbers out. Under the FDIC's definition, these investments include an alphabet soup of securitizations, including collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs). However, holdings of collateralized mortgage obligations (CMOs), which are presented as a separate, much larger item, have actually fallen since the end of last year.

Today, banks face the same challenge investors do: earning a return in an ultra-low yield environment. The concern is how much risk are they taking on to capture incremental yield. It's impossible to answer that question for any one institution from any data that is publicly available, let alone a consolidated balance sheet. Still. there are clues that can be found in a bank's risk culture, in the way its leaders talk about risk, and in its track record through the credit cycle.

There's a reason The Motley Fool calls Wells Fargo (NYSE: WFC  ) "the only big bank built to last." To find out why financials analyst Matt Koppenheffer recently wrote that this lender is "an investment that allows shareholders to sleep soundly" and that "its share price and quarterly dividends are bound to grow," click here to request his premium report, which includes a full year of ongoing updates.

Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2149329, ~/Articles/ArticleHandler.aspx, 10/27/2016 7:20:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:01 PM
WFC $46.15 Up +0.43 +0.94%
Wells Fargo CAPS Rating: ****