In this series, we'll explore the data announcements and events that may affect the performance of bank stocks during the upcoming week.
Banks ended this week on a bit of a sour note, but with some big news headed our way next week, they may find some renewed momentum forward. The data releases are very housing-centric, so traditionally banks would stand to gain if the news showed continued improvements in the housing market. But with the next Federal Open Markets Committee meeting set for this coming Tuesday, interest rates may shift and banks could be on the firing line. Let's look at what's coming up this week.
- Housing Market Index: From the National Association of Home Builders, this index weighs the current sentiment of home builders toward the housing market, current sales, prospective sales for the next six months, and the estimated traffic of prospective buyers to the market. The recent activity in new mortgages was down over the past week, and Wells Fargo (NYSE: WFC ) is among the banks that need to see new customers walk through their doors to maintain higher loan revenue. Wells has already seen a decline in refinancing activity because of higher interest rates, so new mortgages are critical.
- Federal Open Markets Committee meeting: Though the meeting is closed, there is sure to be movement in the market as speculation takes hold. With interest rates at the center of any bank's mind, changes to the Federal Reserve's current rate of bond repurchases could sway investors pretty heavily to or from the banks.
- Housing starts: A gauge of the new construction activity, housing starts are important for bank investors to watch. With the current inventory of houses declining below demand, prices are rising. This is good for banks in several ways. First, rising home prices will help offset some of the declines in new loan volume (higher prices, bigger loans, more revenue); second, banks have been more likely to finalize foreclosures because of rising home prices so as to profit from turnaround sales of the properties. If new housing construction booms, inventory may level out and stifle the home-price increases, limiting the potential growth for the banks in that single aspect.
- Ben Bernanke press conference and FOMC announcement: The event investors have been waiting for! Since we already know there has been increasing pressure from FOMC members to begin tampering the current stimulus policy, investors will be keen to know how the chairman responds. With conflicting economic data providing little insight into the progress of the economic recovery, it will be interesting to see how the Fed moves forward. Banks will also be on the lookout, as the transition to a normalized interest-rate environment will be "scary," as JPMorgan Chase (NYSE: JPM ) CEO Jamie Dimon put it. But Dimon and other have stated at the same time that the change should be welcomed.
- Mortgage Bankers Association purchase applications: Application activity has declined over the past weeks as interest rates have risen. But the overall activity has largely been dominated by refinancings, instead of new mortgage applications. As the rates increase, Bank of America (NYSE: BAC ) and its rivals may have lesser volume, but increased home prices and new buyers entering the market will eventually offset the initial downside.
- Existing-home sales: As I mentioned, the current inventory of homes has been on the decline, with resulting increases in home prices. But as the market rebounds, homebuyers may find the increased value of their homes as an irresistible upside. Also, the increased number of foreclosed properties may find their way back onto the market as the banks try to cash in on higher prices, so be on the lookout for signs that new inventory is becoming available and driving sales numbers higher.
- Jobless claims: The past two weeks have demonstrated the resilience of the labor market, with decreases signaling that businesses are keeping their current employment count steady. And though the improvement in fewer jobless claims is good, investors need to keep watching for signs of new hiring, as that will drive a greater recovery overall.
- Bloomberg Consumer Comfort Index: Consumer sentiment dropped in June, following May's six-year high. As investors wait for more signs of recovery, a continued positive trend from the consumer comfort index could give the right signs that consumer spending has the momentum to push forward. With Citigroup (NYSE: C ) and the other banks' credit card operations providing a big chunk of overall revenue, they need to see consumer spending rise to maintain current revenue levels. If larger loans fall because of interest-rate increases, increased personal spending on credit cards may be able to offset some of the overall declines.
Every week there's new information to assess and analyze, but keep in mind that no headline will make or break your bank stock. Keep an eye on the data and statistics that may help bolster your bank's fundamentals, and don't worry abut the rest. As a long-term investor, know your investment thesis and stick with it. And as always, you can learn more by logging on to Fool.com.
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, the results of the stress tests 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.
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 a bonus, you'll receive a full year of free updates and expert guidance as key news breaks.