The broad indexes ended mixed, as investors looked ahead to President Obama's annual State of the Union Address, scheduled for Tuesday at 9:00 p.m., Eastern time.
The KBW Bank Index (I:BKX) was up over 1% to close at 55.70, with all but five of the 24 index components seeing gains for the session. The index has risen 9% year-to-date, following a 30% return during 2012.
Early on Tuesday, Bank of America Merrill Lynch Chief Investment Strategist Michael Hartnett said in his firm's Global Fund Management Survey that "many measures of market sentiment... are warning that risk assets are now vulnerable to bad news after a 7-month rally." When discussing fund managers' views on bank stocks, Hartnett said that 24% of U.S. fund managers were "overweight" on bank stocks, which was the highest level on record.
Bank of America
Bank of America's shares have returned 6% year-to-date, following a whopping return of 110% during 2012. That was by far the best return among the components of the KBW Bank index, however, it was only a partial recovery from a 58% decline during 2011. Putting it all together, Bank of America's shares are still down 7% since the end of 2010. The shares trade for 9.5 times the consensus 2014 earnings estimate of $1.29 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $0.99. Bank of America still trades at a discount to tangible book value, with only Citigroup and Morgan Stanley (MS) sharing that distinction among the largest U.S. bank holding companies. The company's reported Dec. 31 tangible book value was $13.36 a share. Guggenheim Securities analyst Marty Mosby said in a report on Jan. 18 that the discount to book value represented "the market's expectation for future losses from outstanding mortgage-related overhang issues." Mosby on Feb. 5 raised his price target for the shares to $15.00 from $14.00. The analyst estimates the company will earn $1.15 a share this year, with earnings growing to $1.25 a share in 2014.