In this series, we'll explore the data announcements and events that may impact the performance of bank stocks during the upcoming week.
With the Dow Jones Industrial Average setting a 10-day record with its continued gains, the markets have been on point as investors flood the Street. But this past week has been full of anticipation and suspense as bank investors waited on the second round of stress test results from the Federal Reserve. With the results released last night, and all but two banks getting the green light, shareholders can now turn their attention to the next round of data points that will be sure to influence the movement of their portfolios.
Let's 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.
- Housing Market Index -- produced monthly, this index surveys several different aspects of the housing market in order to determine its strength and growth. Bank investors should be interested in this index for the data it can provide on current and pending home sales, the six-month outlook for home sales, and the flow of new potential buyers into the market. Since loans (particularly mortgages) have been the driving factor for bank growth over the past year, housing market data is a huge driver for the performance of bank stocks.
- FOMC meeting -- held approximately every six weeks, the outcome of the FOMC meetings can be a huge driver for stock performance. Bank investors should have a particular interest in the FOMC's policy changes since it will determine the interest rates banks can charge. Though Wells Fargo (NYSE: WFC ) and JPMorgan (NYSE: JPM ) were the largest producers of mortgages during the second half of 2012, the net interest margin spreads were minuscule because of the near-zero interest rate environment. Both were able to offset the squeeze with non-interest income, like mortgage origination fees, however.
- Housing starts -- a view of the new construction for the residential housing market, the housing starts data provides a great view into the sentiment toward the market's rebound. Combined with the interest rate data from the FOMC meeting, bank investors should get a good sense as to how the market will be progressing, as well as how much new business may be walking into the banks in the form of new mortgages.
- FOMC meeting announcements, forecasts, and chairman press conference -- the results of the FOMC meeting will be disclosed and are sure to have an immediate effect on the markets. The last time FOMC meeting minutes were released, the markets took a dive when it was revealed that some of the committee members were in favor of ending the latest round of quantitative easing early. Bank of America (NYSE: BAC ) took the biggest hit from this news, as it is one of the most volatile stocks in the financial sector. The announcements and forecasts will provide insight into how the Fed will proceed with its monetary policy and interest rate policy.
- MBA purchase applications-- a weekly look at the mortgage application activity from the Mortgage Banker's Association. A decline in mortgage applications can be a sign that the banks are not getting new business from the housing sector, but look for a correlation between this data point and the other housing-related data during the week.
- Bank Reserve Settlement -- every two weeks, banks must meet the Federal Reserve capital requirements. If there are banks that are not properly capitalized to meet the target dates set by the Fed, the Federal Fund Rate may be affected as banks are willing to pay whatever it takes to meet its threshold. A bank not meeting the Fed's reserve requirements doesn't mean it's in trouble, but it can signal poor reserve management, which is not a favorable sign to investors. As the recent CCAR results showed, most of the large banks are over-capitalized. Citigroup (NYSE: C ) was the best of the big four, which earned it a green light from the Fed for its 2013 capital plan.
- Jobless claims -- a weekly look at the new unemployment claims, the jobless report has been one of the main factors cited by analyst as to why the markets have been booming despite continued disagreement in Washington over the federal budget. With the labor market in the best condition we've seen in five years, it's no wonder investors are confident.
- Existing home sales -- a measure of closed sales of preexisting homes, this data point gives a sense of the housing market's condition, since it will show whether or not buyers are interested in buying any home, not just newly constructed homes. One more piece of data that will give bank investors a gauge on how much new mortgage business is available for the banks.
- Federal Reserve Summary of Assets and Liabilities of U.S. Commercial Banks -- a weekly summation of the nation's banks' accounting. The collection of data allows an investor to see which components make up the collective balance sheet, as well as the percentage changes since the last-measured period. It provides important detail on the progress made by the nation's banks to increase revenue generating business.
So much data, so little time
As always, there is a ton of data being released next week, but don't feel overwhelmed. Though it's important to know what's going on that will affect your bank stocks, you don't need to bury your head in every report to be well informed. For next week, the biggest thing will be the results of the FOMC meeting. If you're a B of A investor, be sure to pay attention to what happens after the committee makes its announcements -- your stock is sure to react very quickly.
If you think B of A's stock moved as much as it could when it doubled in 2012, think again. Though it still has significant challenges still ahead, this week's results of the stress test could be the catalyst for B of A's stock resurgence. It's critical to have a solid understanding of this megabank before adding it to your portfolio, regardless of the stress-test results.
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