This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fed Trends Could Bring Down Bank Stocks for 2013

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.

Hand-in-hand with the increase in long-term interest rates is a massive decline in mortgage refinance applications, feeding an overall decline in mortgage loan applications and feeding concern that the U.S. housing recovery could stall. Then again, there are plenty of homes selling for cash. We won't know of any overall drop in home sales until the end of this month.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $16.11 0.00%
COF $81.93 0.00%
MS $37.51 0.00%
USB $42.91 0.00%
WFC $55.19 0.00%

Markets

DOW 18,024.06 +183.54 1.03%
S&P 500 2,108.29 +22.78 1.09%
NASDAQ 5,005.3910 +63.9670 1.29%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs