In this series, we'll explore the data announcements and events that may affect the performance of bank stocks during the upcoming week.
The economic turmoil in Europe hasn't been friendly to American bank stocks this week. With the uncertainty in Cyprus and Italy, added investor concern has put pressure on recent gains that banks have made in the past few weeks. And though it's not completely behind us, the uneventful reopening of the Cypriot banks does give hope that U.S. banks will be able to rely on economic news for boosts in the coming week. Here's a look at what will be released, what banks may be affected, and what investors should expect.
- Motor-vehicle sales: Auto sales are an important indicator of consumer confidence in the economy. Generally, consumers will hold off on large purchases if there's a great deal of uncertainty. And while we usually focus our attention on mortgage loan data, most banks also have a dealer services division that provides consumer auto loans. Since mortgage activity was down this month, it may be important to keep an eye on other revenue-producing operations within the banks. Since Wells Fargo (NYSE:WFC) was the largest mortgage originator in 2012, the recent slowdown of mortgage applications may be putting pressure on its other divisions to increase loan production.
- Construction spending: A macro look at the pace of construction, this data point gives a broad view of how the construction industry is growing. This gives bank investors a sense of how new-home construction -- and, by degrees, mortgage originations -- may be growing as well.
- Bank reserve settlement: It's that time again. Every two weeks, the nation's banks have to settle up with the Federal Reserve to meet capital reserve requirements. And while others may be scrambling to gather enough cash, Citigroup (NYSE:C) is probably sitting pretty following its top ranking in the Fed's stress test in terms of capitalization. Since banks may have to borrow from one another, the Fed funds rate may be affected, but don't expect any change to stick.
- MBA purchase applications: With a resurgence in refinancing and home-loan applications this week, bank investors should watch to see if there's a new pattern emerging following a few weeks of lost ground. JPMorgan Chase (NYSE:JPM), the second largest mortgage originator in 2012, will be happy to have some increased activity in its loan department. But JPM investors should be cautious when considering this data point, as the bank has some other major factors depressing its share price.
- Household debt service and financial obligations ratios: This is a quarterly calculation from the Fed that looks at the average household's ability to pay its debts and financial obligations. This information gives investors a good sense of how households are managing their spending, as well as the ability to take on more debt -- which may provide future business for the nation's banks. It may also provide an opportunity to spot trouble. Foreclosures are on the rise again, with Bank of America (NYSE:BAC) wielding the biggest load of bad loans, creating more trouble for the recovering bank.
- Consumer credit: Investors can use this data point as an overall indication of how consumers are using their available credit. Combined with Thursday's debt ratios, we can get a clear picture of current economic conditions as they apply to consumer spending. Using too little credit can indicate poor economic conditions, while too much credit can point to future reductions in purchases because of higher debt-payment requirements.
A Foolish investor knows that no single news blip will have all the information needed to assess a stock, but too much information can muddle a decision just as easily. As we move through the week, be sure to pick and choose which data points best help or hurt your stock picks. And as always, you can learn more by logging on to Fool.com.
Fool contributor Jessica Alling has no position in any stocks mentioned -- you can contact her here. The Motley Fool recommends Wells Fargo and owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.