February 25, 2013
In this series, we'll explore the upcoming data announcements and events that may impact the performance of bank stocks during the upcoming week.
This is a big week for economic announcements, and bank investors should take note that the information released this week could have a big effect on how your stocks perform. We'll take a look at what's going to be announced, what banks may be affected the most, and what you should look out for in the coming days.
- Federal Reserve Chairman Ben Bernanke will provide his semi-annual testimony before the Senate Banking Committee on Tuesday and Wednesday. After last week's FOMC meeting minutes sent bank stocks into a tailspin, Bernanke is expected to cover the Fed's continued path for its quantitative easing policies. Economists believe that he will touch more on exit strategies and vigilance over inflationary pressures in a nod to the minutes' disclosure of committee concerns on the open ended-ness of the current policy. Bernanke may also hint at what we should see when the Fed releases its balance sheet and the money supply data on Thursday. Expect to see bank stocks move significantly during and after Bernanke's testimony. If there are more indications of QE softening, expect Bank of America (NYSE: BAC ) to receive the brunt of the negative effects. The most volatile bank in the market is still on a downward slope since the FOMC minutes were released on Wednesday.
- Federal Housing Finance Agency House Price Index will be released on Tuesday. The FHFA discloses the price index based on transactions of conforming mortgages for single-family housing purchased or securitized by government-sponsored entities Freddie Mac and Fannie Mae. Increased prices would signal the continued improvement of the housing market, which would be a boon for mortgage kings Wells Fargo (NYSE: WFC ) and JPMorgan (NYSE: JPM ) , which accounted for 40% of the mortgage market during the third quarter last year.
- New home sales data from January will be released by the Dept. of Commerce and the Dept. of Housing and Urban Development on Tuesday. This data will also provide insight into the progress made by the housing market. Bank investors can use the data to help determine the growth rate of new mortgage originations, which will continue to help banks as buyers return to the market.
- Federal reserve disclosure of depository institutions' reserves and the monetary base (H.3) on Thursday and data on the assets and liabilities of U.S. commercial banks (H.8) on Friday. The information on reserves provides a snapshot of the financial industry's strength, based on its capital balances and whether those reserves are borrowed.The compilation of the nation's banks' assets and liabilities allow an investor to see what components make up the collective balance sheet, as well as the percentage changes since the last measured period.
- Commodity Futures Trading Commission and the International Organization of Securities Commissioners public roundtable on Tuesday to discuss the IOSCO Consultation Report, "Financial Benchmarks," published in January 2013.The roundtable is being held to discuss potential issues with current benchmarks and transparency in financial institutions' reporting and methodology. Banks were recently criticized for the varying methodology used to report their capital reserves in light of the latest Basel III capital requirements. For banks like Citigroup (NYSE: C ) and B of A, changes to requirements may jeopardize their positions as the top two banks by Basel III capital reserves.
- Personal Income and Outlays data from the Department of Commerce, to be released on Friday. This data will provide an update for personal income levels as well as expenditure rates. Why is this important to bank investors? Outlays include increases in savings, so even if a person doesn't increase his shopping habits, but does up the amount put in his savings account, the banks are on the receiving end of that outlay -- increasing available capital for new loans and other revenue generating products.
- State Street Confidence Index will be released on Tuesday. The index provides analysis on investor tolerance for risk based on actual data compilation of investment portfolios. Based on the composition of the portfolios analyzed, State Street Global Markets determines the market's confidence -- the more risky stocks, the more confident the market. Since some financials are still viewed as risky investments based on the financial crisis (though it's undeserved), this index may give a bit more confidence in the sector as a whole.
- The S&P Case-Shiller Home Price Index is set to be released on Tuesday. Based on the housing price changes in 20 metropolitan markets, the HPI provides a glimpse into the housing market and buyer sentiment. Economists believe that the economy cannot fully recover until housing prices grow. Bank investors should be attentive to housing prices -- if the Fed allows interest rates to rise, increased housing prices will allow mortgage underwriters (banks) to bring in more profit from new loans.
- The purchase applications data from the Mortgage Bankers Association will be released on Wednesday. As we saw in the past few weeks, reductions in mortgage applications can hit banks hard. An improvement in the application rate will be a great sign that banks are getting more business and that the housing market is continuing its slow but steady climb.
- Pending home sales data from the National Association of Realtors will be released on Wednesday. This information, coupled with the previously mentioned announcements, gives investors a full picture of the housing market since this set of data is particularly focused on existing home sales.
It's a lot of data
The end of one month and the beginning of another provides for a barrage of economic data. And though it's important for investors to be knowledgeable of the information that could impact their investments, don't feel like you need to study each one. While no single report or event will be a make-or-break situation for banks, they are some of the most affected stocks in the market based on investor sentiment about the economy.
Investor sentiments is one of the key factors driving Bank of America's stock price. And while it doubled in 2012, there's plenty of back and forth about what's to come. With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including offering three reasons to buy and three reasons to sell. Click here now to claim your copy, and as an added bonus, you'll receive a full year of FREE updates and expert guidance as key news breaks.