Wells Fargo & Co (WFC), Bank of America Corp (BAC): The Dow Jones Industrial Average (.DJI) Still Doesn’t Have to Worry About Inflation

Continued Fed bond-buying in defiance of the market’s tapering expectations could have huge positive impacts on financial stocks. Wells Fargo & Co (NYSE:WFC) and Bank of America Corp (NYSE:BAC) have both recently announced job cuts as a consequence of weaker mortgage-lending activity. Mortgage rates have risen in large part due to the expected halt of Fed purchases of mortgage-backed securities, but if QE continues at its current pace, a reversal in those rates could help preserve the mortgage business at those and other banks. With Wells Fargo & Co (NYSE:WFC) having posted $2.8 billion in mortgage income just in its second quarter and Bank of America Corp (NYSE:BAC) reporting $1.2 billion in mortgage-banking profits, the industry has a lot at stake.

Moreover, financial companies have big bond portfolios that could also benefit from lower rates. JPMorgan Chase & Co. (NYSE:JPM) said earlier this week that continued rises in bond rates could cost it as much as $15 billion in losses on its bond holdings. A downturn in rates, on the other hand, could produce big profits.

Watch the Fed
For the next week, all eyes will be on Fed officials as they meet to make what could be a landmark decision about the future course of monetary policy. Much of their eventual decision could hinge on how they interpret inflation figures like the PPI’s recent modest gains.

The article The Dow Still Doesn’t Have to Worry About Inflation originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger owns warrants on Wells Fargo, Bank of America, and JPMorgan Chase. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo.

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