The Next Fed ChairBernanke's term ends on Jan. 31 of next year, leaving plenty of time for the Senate to confirm a nominee, however, Obama may face difficulty in finding a candidate who can clear the Senate Banking committee, before heading to the Senate floor for a confirmation vote. Summers has been critical of the Federal Reserve's accommodative monetary policy, while the other highest-profile candidate -- current Federal Reserve System Vice Chair Janet Yellen -- is favored by investors who wish for the central bank to maintain the course it has taken under Bernanke's leadership. Summers had faced plenty of opposition from Democratic members of the Senate Banking Committee, including Jon Tester (D., Mont.), who had gone on the record saying he was against Summers's potential nomination, and Jeff Merkley (D., Ore.), Sherrod Brown (D.,-Ohio) and Elizabeth Warren (D-Mass.), who were widely expected at least to question the suitability of Summers for the role. Some of the criticism springs from his support of the Commodity Futures Modernization Act of 2000, which prevented direct regulation of derivatives trading between large banks.
Short-Term Traders BewareCannon also believes this may be a good time for investors holding financial stocks to take profits, especially those whose stellar returns this year have been the most correlated with the rise in the yield on 10-year Treasury bonds. Among the financial stocks with year-to-date gains must correlated with the rising rate for the 10-year, according to Cannon, are TD Ameritrade ( AMTD), U.S. Bancorp ( USB), M&T Bank ( MTB), Prudential Financial ( PRU) and Charles Schwab ( SCHW).
A Longer-Term ViewThen again, short-term volatility can be quite a benefit for long-term investors looking to load up on favored names. "it's a silly notion that the considerable long term values in bank shares are somehow irrelevant for the next three months," says Ron Beasley, an investment advisor in Houston, who's portfolio as of June 30 included Wells Fargo and U.S. Bancorp ( USB). "Over-reactions that are amplified by high-volume trading activity provide opportunities that wouldn't exist in a value-based market," Beasley says, adding that "being a value investor now is actually easier than it used to be, with all this noise surrounding the activity in the markets." Wells Fargo and U.S. Bancorp have generated by far the strongest and steadiest returns on equity among the largest 10 publicly traded U.S. banks over the past five years. Shares of both companies trade for significant discounts to their valuations before the credit crisis of 2008. Wells Fargo trades for 10.7 times the consensus 2014 earnings estimate of $4.01 a share, among analysts polled by Thomson Reuters. U.S. Bancorp's shares closed at $37.51 Monday and trade for 11.7 times the consensus 2014 EPS estimate of $3.21.
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