NEW YORK (TheStreet) -- Investors will see saturation coverage of the Federal Reserve this week, and a lack of clear direction from the Fed could make this a great time to take profits on interest-sensitive bank stocks, according to KBW analyst Frederick Cannon.
"Interest rate-sensitive financials have fared well since the Fed began its discussions of tapering bond purchases earlier this year and bond yields began to increase," Cannon wrote in a note to clients Sunday. "The yield curve is now approaching record levels of steepness and unless the Fed signals a definitive approach to tapering and timing for an increase in short-term rates, bond yields are likely to be volatile during the fall."
So what does that mean to bank stock investors? It "suggests that interest rate-sensitive stocks are unlikely to be outperforming during the remainder of the year."
The Federal Open Market Committee meets on Tuesday and Wednesday, and the committee on Wednesday afternoon will issue its statement, which will include the long-awaited plan to lower the central bank's monthly bond purchases. Unless the committee decides to wait again because of mixed signals from recent economic reports.All eyes will be on Federal Reserve Chairman Ben Bernanke, who will hold a press conference Wednesday afternoon. The Fed has been making monthly purchases of $40 billion long-term mortgage-backed securities and $45 billion in long-term U.S. Treasury bonds since last September, in an effort to hold-down long-term interest rates. This "QE3" policy hasn't worked over the past several months, sine the market has pushed up long-term rates in anticipation of a tapering of the Fed's balance sheet expansion. The market rate on 10-year Treasury bonds has risen to 2.79% Monday morning from 1.70% at the end of April. Interestingly, the withdrawal by Lawrence Summers from consideration to be President Obama's nominee to succeed Bernanke in January, had a very positive early effect on the bond market, sending the yield on the 10-year down 10 basis points in early trading.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV