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After being down slightly in overnight trading, Bank of America (NYSE: BAC ) seems to have found its legs: up by a steady if unspectacular 0.97% a little less than halfway through the trading day. Is news by Moody's Investors Service helping keep B of A shareholders in the green today?
Moody's "big" news
MarketWatch is reporting Moody's has changed the outlook on the U.S. banking sector from "negative" to "stable." The outlook changed to negative around the time of the 2008 financial crisis, when much of the U.S. banking industry found itself fighting for its life.
According to Moody's associate managing director Sean Jones: "Sustained GDP growth and improving employment conditions will help banks protect their now-stronger balance sheets."
The bottom line
Jones could also have thrown in that the largest rise in U.S. house prices in seven years will also strengthen bank balance sheets: As homeowners regain lost equity, they will be less and less likely to simply abandon ship and default on their loans.
It's difficult to say how much weight investors place on statements by the ratings agencies. It's widely acknowledged that they blew it during the housing boom: rating mortgage-backed securities and collateralized-debt obligations as AAA or AA that had no business being labeled as anything other than "junk."
Still, there's little doubt that the banking sector has improved significantly since the crisis, even B of A: unarguably the bank that emerged from the crash in the worst shape short of actually collapsing, a la Bear Stearns and Lehman Brothers. Moody's announcement certainly isn't hurting anything, and it may be responsible for at least a little of the spring in B of A's step today.
Of course, the Big Four banks and the markets are all mixed today, so it's hard to say for sure what's going on in particular for B of A. And this can often be the case, which is why we stress a long-term approach to investing here at The Motley Fool: Tune out the market noise and tune into the fundamentals of the companies you're invested in. Your portfolio will thank you, even if your broker won't.
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