Bank of America Corp (BAC) Is Rallying the Dow

Bank of America Corp (NYSE:BAC)

The Dow Jones Industrial Average (INDEXDJX:.DJI) is down following some mixed economic reports and worse-than-expected consumer-confidence numbers. As of 1:10 p.m. EDT the Dow is down 38 points, or 0.26%, to 14,502. The S&P 500 (INDEXSP:.INX) is down 0.12% points to 1,561.

There were three U.S. economic releases today.

Report Period Result Previous
Consumer Price Index February 0.7% 0%
Core CPI February 0.2% 0.3%
Industrial production February 0.7% 0%
Capacity utilization February 79.6% 79.2%
UM Consumer Sentiment Index March 71.8 77.6

Source: MarketWatch U.S. Economic Calendar.

The CPI which rose 0.7% in February, just slightly above analyst expectations. The rise owed mainly to energy prices, which rose 5.4% in February. Core CPI, which excludes energy and food, rose only 0.2% in February. Many economists and investors are worried the Federal Reserve’s QE3 will stoke inflation. While that hasn’t been the case yet, it’s something to keep in mind as the Fed does everything it can to make that happen.

US Consumer Price Index 1-Month Percent Change Chart

US Consumer Price Index 1-Month Percent Change data by YCharts.

The second economic release was the Federal Reserve’s industrial-production and capacity utilization report, which showed a small surprise on the upside for industrial production. Industrial production rose 0.7% in February, beating analyst expectations of a 0.6% rise. Year over year, industrial production was up 2.5%. Capacity utilization rose to 79.6%, slightly below the 40-year average of 80.2%. Both stats are positive for the economy and show a strengthening manufacturing sector.

The final economic release was the University of Michigan’s Consumer Sentiment Index, which unexpectedly took a big drop, falling to its lowest level since December 2011. The Dow started the day down but dropped noticeably after the survey was released. Analysts had expected consumer sentiment to remain largely unchanged at 78. Consumers’ opinions of the state of the economy sank as energy prices rose, the payroll tax increase ate into consumers’ wallets, and Congress let sequestration take effect. While this is only a survey of consumers’ opinions, it’s generally seen as correlated with consumer spending. If consumers stop spending, the economy will definitely slow, as consumer spending makes up 70% of the U.S. economy. That said, the survey can be extremely volatile, so it remains to be seen whether this is a blip or a new trend.


Today’s Dow leader
Today’s Dow leader is Bank of America Corp. (NYSE:BAC), up 3.7% to $12.56. Yesterday, the Federal Reserve announced the results of its stress tests of U.S. banks. Bank of America had requested authorization of a $5 billion stock buyback and a $5.5 billion preferred-stock buyback, which the Federal Reserve approved. Meanwhile, Goldman Sachs Group, Inc. (NYSE:GS) and Dow bank JPMorgan Chase & Co. (NYSE:JPM) were both asked to resubmit capital plans by the end of the third quarter, while BB&T’s capital plan was rejected. If you want to learn more, you can read Fool analyst John Maxfield’s take on Bank of America’s stress test results. The bottom line is that the Federal Reserve’s acceptance of the plan shows that Bank of America is strengthening, and soon the bank will be repurchasing shares at below book value.

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Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He owns shares of Bank of America. The Motley Fool owns shares of Bank of America and JPMorgan Chase & Co.

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