Why Bank of America Corp (BAC) Is Down Again Today

Since the beginning of this week, shares of Bank of America Corp (NYSE:BAC) have fallen by more than 5% while the S&P 500 is down only 1.3%. What explains the difference?

The answer is twofold.

Bank of America Corp (NYSE:BAC)The first part of the answer has little to nothing to do with anything that’s taken place over the last few days. Since the financial downturn, B of A has become one of the most heavily traded stocks on the market. High-frequency traders love it because it’s cheap enough on a per-share basis to trade massive amounts of stock at a reasonable price. In addition, it offers virtually limitless liquidity because of its nearly 11 billion outstanding shares. For these reasons, along with the natural rise in high-frequency operations, it went from trading an average of 11.7 million shares a day in 2000 up to an average of 198 million last year, a nearly 17-fold increase.

Source: Yahoo! Finance.

With this in mind, it should come as no surprise that B of A’s shares have become exceeding volatile. In the investment world, volatility is expressed by a stock’s beta. A beta of 1 indicates that a stock moves in perfect unison with the broader market. A beta of less than 1 implies less volatility. And a beta of more than 1 implies more volatility. In B of A’s case, its beta is somewhere between 1.8, which is the figure Yahoo! Finance provides, and 2.4, the figure provided by the financial screener Finviz.com. On any given day, in turn, B of A’s stock price is between 80% and 140% more volatile than the broader market.

On top of this is the second part of the answer, as B of A isn’t immune from the influence of outside events. The events impacting the bank this week concern the housing market, the health of which is critical for the success of virtually any bank. While housing prices and sales volumes have been gradually improving over the past two years, data released yesterday suggests that the market took a breather last month. According to the Commerce Department, housing starts fell by 8.5% in January compared to December; though they were up 23.6% on a year-over-year basis.

In addition, as my colleague Amanda Alix noted yesterday, there’s growing evidence that the Federal Reserve could terminate its third round of quantitative easing earlier than expected. The minutes from the Fed’s most recent monetary policy meeting were released yesterday, and they show that a growing number of the committee members believe it’s time to start winding the program down. Because this round is focused on spurring housing prices and demand via lower mortgage rates, this has many a bank investor worried.

The article Why Bank of America Is Down Again Today originally appeared on Fool.com and is written by John Maxfield.

John Maxfield owns shares of Bank of America. The Motley Fool owns shares of Bank of America.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!