In this series, we’ll explore the data announcements and events that may affect the performance of bank stocks during the upcoming week.
Banks ended this week on a bit of a sour note, but with some big news headed our way next week, they may find some renewed momentum forward. The data releases are very housing-centric, so traditionally banks would stand to gain if the news showed continued improvements in the housing market. But with the next Federal Open Markets Committee meeting set for this coming Tuesday, interest rates may shift and banks could be on the firing line. Let’s look at what’s coming up this week.
Housing Market Index: From the National Association of Home Builders, this index weighs the current sentiment of home builders toward the housing market, current sales, prospective sales for the next six months, and the estimated traffic of prospective buyers to the market. Since the recent activity in new mortgages was down over the past week, banks like Wells Fargo & Co (NYSE:WFC) need to see new customers walk through their doors to maintain higher loan revenue. Wells has already seen a decline in refinancing activity due to higher interest rates, so new mortgages are critical.
Federal Open Markets Committee meeting: Though the meeting is closed, there is sure to be movement in the market as speculation takes hold. With interest rates at the center of any bank’s mind, changes to the Fed’s current rate of bond repurchases could sway investors pretty heavily to or from the banks.
Housing Starts: A gauge of the new construction activity, housing starts are important for bank investors to watch. With the current inventory of houses declining below demand, prices are rising. This is good for banks in several ways: first, rising home prices will help offset some of the declines in new loan volume (higher prices, bigger loans, more revenue); second, banks have been more apt to finalize foreclosures due to the rising home prices in order to profit from turnaround sales of the properties. If new housing construction booms, inventory may level out and stifle the home price increases, limiting the potential growth for the banks in that single aspect.
Ben Bernanke press conference and FOMC announcement: The event investors have been waiting for! Since we already know that there has been increasing pressure from FOMC members to begin tapering the current stimulus policy, investors will be keen ot know how the Chairman responds. With conflicting economic data providing little insight into the progress of the economic recovery, it will be interesting to see how the Fed moves forward. Banks will also be on the look out as the transition to a normalized interest rate environment will be “scary,” as JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon put it. But Dimon and other have stated at the same time that the change should be welcomed.
MBA purchase applications: Application activity has declined over the past weeks as interest rates have risen. But the overall activity has largely been dominated by refinancings, instead of new mortgage applications. As the rates increase, Bank of America Corp (NYSE:BAC) and its rivals may have lesser volume, but the increased home prices and new buyers entering the market will eventually offset the initial downside.