In this series, we'll explore the data announcements and events that may impact the performance of bank stocks during the upcoming week.
This past week was a big week for economic announcements, and though there will be plenty of data released this coming week, bank investors should note that the information released this week may have a bigger effect on how your stocks perform. The announcements will largely come on Wednesday and Thursday, so be prepared for a lot of movement late in the week. 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.
- Bank Reserve Settlement -- the Federal Reserve has target dates every two weeks on which the nation's banks must meet their capital requirements. Since some banks may have to scrounge up capital from other banks, 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. Based on their fourth-quarter capital ratios, Bank of America (NYSE:BAC), Citigroup (NYSE:C), and JPMorgan (NYSE:JPM) were the top three capitalized banks of the nation's five largest, with 9.25% for B of A and 8.7% for C and JPM.
- MBA Purchase Applications-- a weekly look at the mortgage application activity from the Mortgage Banker's Association. It is important for bank investors to keep an eye on mortgage activity, since loans are a primary driver of a bank's profitability. Mortgage king Wells Fargo (NYSE:WFC) produced the largest percentage of mortgage originations in the third and fourth quarters of 2012, propelling it to a $19 billion profit for the year. If mortgage activity continues to trend downward, bank will have a harder time contending with the continued pressure in net interest margins, which has mostly been offset by non-interest fees, like mortgage origination fees.
- Federal Reserve's Beige Book-- produced two weeks before the FOMC's monetary policy meeting, the Fed's beige book provides evidence of the economy's condition, which influences the Fed's interest rate policy. Interest rate changes are one of the most influential movers of the markets, and are of particular importance to banks. The recent release of the last FOMC meeting's minutes sent the banks into a tailspin when it was revealed that members of the committee supported ending the current QE stimulus program early.
- ADP Employment Report -- released monthly, ADP (NASDAQ:ADP) releases data that indicates employment and wage trends, including any wage inflation insights. The release of the ADP report starts of the rest of the week's employment data announcements, and as employment data can have a big effect on investor confidence it's important to every bank stock out there.
- Jobless claims -- weekly data is released giving a view of the job market based on new unemployment applications. The higher the claims, the worse the labor market.
- Challenger Job-cut Report -- released monthly, this report gives some color to the weekly job-less reports. Though it doesn't provide all the data necessary to make absolute judgments on the state of the job market, the Challenger report does give information on geographic and industry related trends.
- Employment Situation-- one of the most influential labor market data releases, the employment situation gives a glimpse of the current job market -- who has jobs, who doesn't, who gets paid what, how many hours are they working, and what sectors are thriving. This information is a key driver in investments flocking to one sector over another. With the recent job cuts announced by JPMorgan, as well as the previous cuts made by Citi, B of A, and others, it's unclear how this will affect the banking sector.
- Consumer Credit -- stepping away from the job market, this data release gives an overall indication of how consumers are using their available credit. Too little credit can indicate poor economic conditions, too much credit can point to future reductions in purchases due to higher debt payment requirements. Since the country has been enjoying a low-interest rate environment for some time, it may show that demand for credit is rising, which could spark an increase in rates.
Huge amounts of data
It can be hard to know what will and won't affect your stocks, but being aware of the data announcements that could sway the market is always an important factor in Foolish investing. But don't feel like you have to memorize and analyze all of the data each week. 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.