The broad indices all saw strong gains, with investors looking ahead to a Senate Banking Committee hearing Thursday, which will consider President Obama's nomination of current Federal Reserve Vice Chair Janet Yellen to succeed Ben Bernanke as the next chairperson of the central bank.
Yellen has been a very strong supporter of the Federal Reserve's "highly accommodative" stimulus policy, and her comments before the committee on Thursday are expected to underline that support. Then again, Republican committee members, including Sens. Richard Shelby (R., Ala.) and David Vitter (R., La.), can be expected to pose difficult questions for Yellen, as both have repeatedly expressed strong reservations for the Fed's ongoing attempts to stimulate faster economic growth.
Media reports continue to focus on "QE3," which includes monthly net purchases of $85 billion in long-term securities by the central bank, in an effort to hold down long-term interest rates. Federal Reserve Bank of Atlanta president Dennis Lockhart -- an alternate member of the Federal Open Market Committee -- in a speech on Tuesday, said that because of the partial shutdown of the federal government during the first half of October, "some of the data we follow are likely to be less reliable than usual through December at least."The FOMC does not like to change policy without having concrete economic data. While Lockhart did say that the Fed's "mix of policy tools" may change, it would appear from his comments that the "tapering" of bond purchases -- feared by stock investors in the midst of a two-year bull market -- will not be announced following the next FOMC meeting on Dec. 11 to 12. The KBW Bank Index (I:BKX) on Wednesday rose nearly 1% to 65.71.
Bank of AmericaShares of Bank of America have returned 26% this year, following a 110% return during 2012. The stock trades for 10.9 times the consensus 2014 earnings estimate of $1.34 a share, among analysts polled by Thomson Reuters. The consensus 2015 EPS estimate is $1.60. That expected 26% EPS growth -- fed in part by a major increase in expected share buybacks -- helps explain the stock's rather high forward price-to-earnings valuation when compared to peers among the "big four" U.S. banks:
- Shares of JPMorgan Chase (JPM) closed at $54.16 Wednesday and traded for 9.0 times the consensus 2014 EPS estimate of $6.02. Despite booking a third-quarter net loss as it beefed up legal reserves in anticipation of major settlements of investigations of its mortgage activities by regulators and the Department of Justice, JPMorgan's return on average tangible common equity (ROTCE) for the 12-month period ended Sept. 30 was 12.59%, according to Thomson Reuters Bank Insight.
- Citigroup (C) closed at $49.97 Wednesday and traded for 9.2 times the consensus 2014 EPS estimate of $5.43. The company's ROTCE for the 12-month period ended Sept. 30 was 7.42%.
- Wells Fargo (WFC) closed at $42.68 Wednesday and traded for 10.6 times the consensus 2014 EPS estimate of $4.01. The company's 12-month ROTCE through September was 17.58%.
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