After a nice rally late in trading yesterday, Bank of America (NYSE:BAC) is one of the only bank stocks seeing red this morning. The bank opened 0.88% higher than yesterday's close, only to fall precipitously within the first half hour of trading. Since the other members of the Big Four and the banking sector overall don't seem to be providing the trend for Bank of America's moves so far this morning, should investors be worried about this lone wolf?
Yesterday's rally may have been spurned on by investor optimism for the upcoming jobs report that was released earlier this morning. If that's the case, then the optimism hasn't been dampened by the fact that the report didn't deliver on the goods. With the overall unemployment rate slightly higher than the previous report's 7.5% at 7.6% for May, the labor market appears to be regressing, if only by a tiny bit.
So why are bank stocks, with the exception of B of A, doing well in spite of this report? As we've seen in the past few weeks, speculation over the Fed's next move with its stimulus plan seems to be driving many of the reactions within the market to economic data. And since the labor market is really the key to deciphering any changes to the status quo, reactions to new labor data hit marketwide. Banks have been viewed as big beneficiaries of the monetary policy, allowing cheaper financing costs, etc. So with news that the labor market is not improving as the Fed would hope, there's less chance of changes in the near future -- leaving banks on the receiving end of positive QE3 benefits.
But for the drivers of new mortgage origination, the low interest rate environment is not necessarily in their favor. Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM) were the top two originators in 2012, and while the new rates may have driven more activity, they also generated lower revenue-producing loan portfolios for the banks. With B of A trying to gain more market share in mortgages, low interest rates going forward will not help the bank's loans produce the revenue we would have seen in a normalized rate environment.
So what's up with B of A
The other banks may be enjoying the overall market upswing this morning, with the KBW Bank Index (DJINDICES:^BKX) up 0.94% just after 10:30 a.m., but Bank of America is lagging behind, probably because of continued investor concern over its current legal battle. Though the bank recently disclosed that the $8.5 billion settlement to investors over soured mortgage-backed securities was generous given the option to take Countrywide into bankruptcy, opposition has hit back hard in court.
Though the hearing will not be resolved in the next few days, investors should keep an eye out for any news since the headlines will likely sway your stock's price quite a bit. But for long-term investors, this case doesn't effect the bank's fundamentals, and the daily swings from investors who are scared shouldn't concern you terribly.