With earnings season over for the Big Four and other regional banks wrapping up their reports as well, bank investors should turn an eye toward the two biggest macroeconomic factors for insight into how the banks will move on from here. This coming week is a doozy for both factors — housing and employment — and will provide plenty of food for though and/or trading.
Housing
Pending home sales (Monday): Showing the number of homes currently in the sales process, this index can indicate how buyers are feeling about the market and the availability of credit. For bank investors, this report can also give a sense about the number of loans currently working their way through the closing process. Though Wells Fargo & Co (NYSE:WFC) noted that its pipeline for new loans was smaller at the end of the second quarter compared with the prior one, new surges in buyer demand could be helping drive more business to the banks.
Case-Shiller price index (Tuesday): As we’ve been seeing for some time, home prices are rising because of the unbalanced supply and demand for homes. Even though the interest-rate environment remains low, higher home prices could help the banks’ revenue streams by allowing a greater amount of interest to be generated from new loans with higher principal balances. Though it may want volume to drive its growth in the mortgage market, Bank of America Corp (NYSE:BAC) could very well gain ground by selling new mortgages to its wealthier clients — allowing larger loans to advance its place in the origination hierarchy.
MBA purchase applications (Wednesday): There has been a solid trend of declining activity in mortgage applications over the past few weeks, with last week’s report showing another 2% drop. But with interest rates falling for the first time in more than two months, there may be new incentives for buyers to lock in the low rates now.
Construction spending (Thursday): As we’ve seen from the past weeks’ sales reports, home inventories are below the six-month range that economists view as a good balance between supply and demand. The construction spending report will give investors a glimpse of homebuilders’ confidence in the housing market’s continued advances, as well as their outlook on newly constructed home sales. This report also gives bank investors a sense of whether lending to construction firms is growing or softening.
Employment
ADP employment report (Wednesday): The ADP report gives some dimension to the labor market, as it allows investors to see the number of employees and their pay within the private sector. The data also helps investors interpret and extrapolate information later in the week when used in tandem with the Labor Department’s overview of the employment situation.
Employment cost index (Wednesday): Giving a more total picture of labor costs, the employment cost index allows investors to see wage trends as well as risks of wage inflation, which is a big no-no for the Federal Reserve and a sign that interest rates could rise.
