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.

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 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!