The broad indices all ended with 1% gains, as the narrative of the U.S. housing rebound continued. The Federal Housing Finance Agency reported that its House Price Index was up 0.7% in February from January, and that house prices in the U.S. were up 7.1% from a year earlier. The U.S. House Price index was still 13.6% below its peak in April 2007, right before the housing bubble burst.
The KBW Bank Index (I:BKX) rose 2% to close at 55.80, with all 24 index components ending with gains. The index is, of course, heavily weighted to Bank of America (BAC - Get Report), which was up 3% to close at $12.07, after Morgan Stanley analyst Betsy Graseck upgraded the company to an "overweight" rating from an "equal-weight" weighting.
Graseck raised her price target for Bank of America to $16 from $13, and said in a note to clients that "you don't get a lot of second chances in life, and so we are taking advantage of this one....BAC is about to deliver on a significant expense reduction over the next several quarters, which should fall to the bottom line and boost EPS. Also, we expect BAC will be largely through significant litigation risk by YE2013."Based on her expectations for the bank's expense reduction, credit quality improvement and a gain in market share at the expense of Wells Fargo (WFC), Graseck raised her 2013 earnings estimate for Bank of America to $1.07 a share from $1.01, while raising her 2014 EPS estimate to $1.43 from $1.30. Her 2015 EPS estimate for Bank of America is $1.98.