Big Banks: FOMC Losers

NEW YORK ( TheStreet) -- The nation's largest banks took it on the chin following the release of the minutes from the Federal Open Market Committee's meeting on July 30 and 31.

The Dow Jones Industrial Average was down 0.7%, while the S&P 500 ( SPX.X) was down 0.6% and the Nasdaq Composite ended with a decline of 0.4%.

The KBW Bank Index ( I:BKX) was down 1% to close at 64.07, with all 24 index components showing declines, except for Cullen/Frost Bankers ( CFR) of San Antonio, which was up 1% to close at $73.65, and Bank of America ( BAC), which was up a nickel to close at $14.34.

Investors were focused on the release of the minutes from the most recent meeting of the Federal Open Market Committee. When the FOMC issued its last statement on July 31, there was no change in policy and the language of the statement was nearly identical to the previous one.

The Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008, and the FOMC has repeatedly said this "highly accommodative" policy was likely to remain appropriate at least until the U.S. unemployment rate dropped below 6.5%. The July unemployment rate was 7.4%, improving from 7.6% in June.

A more immediate concern for investors is the expected tapering of the Fed's monthly purchases of $40 billion in long-term agency mortgage-backed securities and $45 billion in long-term U.S. Treasury bonds, which has been going on since last September. The market has looked ahead to the expected rise in long-term interest rates that will be brought about by a limiting of Fed expansion, by pushing the market yield on 10-year Treasury bonds to 2.88% from 1.70% at the end of April.

According to the FOMC minutes released at 2:00 p.m. ET, committee members "generally continued to anticipate that the growth of real GDP would pick up somewhat in the second half of 2013 and strengthen further thereafter." That would tend to support tapering of Fed bond purchasing by the end of the year.

Then again, "A number of participants indicated, however, that they were somewhat less confident about a near-term pickup in economic growth than they had been in June; factors cited in this regard included recent increases in mortgage rates, higher oil prices, slow growth in key U.S. export markets and the possibility that fiscal restraint might not lessen."

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