In this series, we'll explore the data announcements and events that may impact the performance of bank stocks during the upcoming week.
The Dow Jones Industrial Average's meteoric rise last week overshadowed any big news from economic announcements. But as we continue with new highs of the stock market, it will be important for more confidence boosters to come from weekly announcements. For financials investors, next week is a particularly exciting time and will determine how many banks move forward during 2013.
Let's take a look at what's going to be announced, what banks may be affected the most, and what you should look out for in the coming days.
- NFIB Small Business Optimism Index -- a monthly review of small business plans for the near term. This data is important for banks and their investors, since the expansion plans of businesses can produce higher rates of incoming business loans. The index also looks at businesses' expectations of credit conditions, giving banks a glimpse of the attitude new business customers will have toward the banks' products. Bank of America has been making strong attempts at expanding its small-business lending segment, especially on its home turf in North Carolina, where it extended $230 million in loans to businesses with less than $5 million in annual revenue.
- Treasury Budget -- a monthly look at the state of the federal budget and the progress on deficit reduction. Mostly important because of the confidence-building possibilities an improving budget can give to investors, the budget will also show signs of movement in the bond market, which banks invest in to beef up their capital reserves.
- MBA Purchase Applications-- a weekly look at the mortgage application activity from the Mortgage Banker's Association. It is important for bank investors to keep an eye on mortgage activity, since loans are a primary driver of a bank's profitability. JPMorgan Chase and Wells Fargo produced the largest percentage of mortgage originations in the third and fourth quarters of 2012, generating large portions of their revenue for 2012. With the continued pressure on net interest margins from the low rate environment, a continued decline in mortgage activity may negatively impact the nation's banks, which continue to offset lower spreads with non-interest fees, like mortgage origination fees.
- Federal Reserve's Comprehensive Capital Analysis and Review-- the 2013 results of the Fed's stress tests of the nation's banks, including 18 publicly traded, will be released. This is huge news for some of the big players. Bank of America will be at the top of everyone's list to review first, as the CCAR results may implicate whether the bank will be able to raise its upcoming dividend. Citigroup may also be closely watched as it continues to trade below book value (like B of A), and the results of the stress test may draw more confidence from investors.
- Current Account -- a quarterly look at the country's foreign trade activity. The Current Account can show pressures on the dollar in transactions with international partners, which is important for banks to monitor as they both operate and extend credit abroad.
- Bloomberg Consumer Comfort Index -- a weekly glimpse at consumer spending, which can provide important indicators of consumer appetite for credit. Since lending is a primary source of income for banks, increased consumer spending with improved credit demand is a positive environment for growth.
- Consumer Sentiment -- a monthly poll of American households, which provides data on the average consumer's opinion of the economy. When sentiment is positive, higher spending and borrowing can occur -- a positive opportunity for banks to increase their lending operations.
- Federal Reserve Summary of Assets and Liabilities of U.S. Commercial Banks -- a weekly summation of the nation's banks' accounting. The collection of data allows an investor to see which components make up the collective balance sheet, as well as the percentage changes since the last-measured period. It provides important detail on the progress made by the nation's banks to increase revenue generating business.
Only one will matter
In the end, the data from the Fed's CCAR will be the most talked-about and the most analyzed of any mentioned above. The results of the banks' stress tests have been much speculated about and looked forward to with great anticipation. Since it has the most to gain from a positive result, make sure to watch how Bank of America moves after the results are announced -- it's sure to make a splash on Thursday.
If you think B of A's stock moved as much as it could when it doubled in 2012, think again. Though it still has significant challenges still ahead, this week's results of the stress test could be the catalyst for B of A's stock resurgence. It's critical to have a solid understanding of this megabank before adding it to your portfolio, regardless of the stress test results. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including offering three reasons to buy and three reasons to sell. Click here now to claim your copy, and as an added bonus, you'll receive a full year of FREE updates and expert guidance as key news breaks.