Getting underway in a new year is always an exciting process for us, just as it probably is for you. But starting a “new chapter” after a crisis is more than exciting. It’s daunting.
This week’s Update takes a look at the new chapter taking place in the world of banking. Looking through the lens of Bank of America’s 54 year old CEO, Brian Moynihan, we can view what that new chapter might look like.
Of course, the regular market news of the week is there too, both last week’s metrics and this week’s upcoming economic goings on.
We hope you’re off to a nice start in 2014 and that you enjoy this week’s Update.
Our best,
Lee and Jeremy
PS- If you haven’t done so recently, please hit the reply button. Send us your feedback on things you like and things you’d like to see or know more about. Thanks!–L&J
This Week’s Quote:
“It took a lot of intensity to get through the bad times. Now the question is can we turn the intensity to innovation…? ― Brian Moynihan, Bank of America CEO
On a recent stop through the Phoenix area, Bank of America CEO Brian Moynihan sounded a very optimistic tone for his company, the U.S. economy, and the banking sector. Even as we remember that a CEO’s job is to be positive and encouraging, we certainly see why he did so.
BOA will report its fourth quarter earnings Monday, which analysts estimate to be $10 billion or so—quite a nice quarter to be sure, though nowhere near the $21 billion quarterly profit logged in 2006. But to get an idea of where BOA has been, consider this: at the peak of the financial crisis, the company had 58,000 people working primarily on the problems associated with bad mortgage loans. There could be more skeletons in the closet, what with rival Chase recently agreeing to a settlement of $2.6 billion for its role in the Madoff scandal. But for the most part, BOA seems highly representative of the big banks. Capital and liquidity are higher than before the crisis, profits are up nicely, and fewer resources go toward problems like bad loans. “The industry is in very strong shape in this country,” Moynihan says. They’re 250,000 employees strong, and hiring.
So what’s next and why do we care?
With the adoption of the Volcker rule, eliminating speculative trading practices, more uncertainty in the banking sector has been removed. A steadily recovering global economic environment should be good for lending. Increasing interest rates, when they come along, should be good for both savers and banks. Smart borrowers will manage debt fine at modestly higher rates.
As well, leapfrogging advances in technology will be a good thing for financial institutions and the consumer alike. BOA plans to soon deploy a new ATM model, allowing for voice interaction allowing customers to speak to a teller around the clock. The financial sector, particularly banking looks to be sustaining the excellent performance of the past couple of years.
As to why we care, the banking sector is a good leading indicator of the economy as a whole in many respects. And the economy is a good indicator of markets for the families whose financial worlds depend on. In that respect, Moynihan’s comments and BOA’s performance is heartening.
While we may be in the “seventh inning stretch” of the U.S. recovery, positive signs like BOA’s say that the home team may be just fine for now.**
Market Week: January 13, 2014
The Markets
Believers in the so-called January indicator--the concept that the first five trading days suggest the stock market's overall direction for the rest of the year--were likely discouraged last week. The S&P gave up roughly half a percentage point during 2014's first five trading days. The other three domestic indices also slipped during those five days, with losses ranging from the Nasdaq's quarter of a percentage point to the Dow's nearly seven-tenths of a percent. A rebound at week's end gave three of the four domestic indices a gain for the week. However, the small-cap Russell 2000 was the only index to see gains for both the week and the year so far. Meanwhile, the yield on the benchmark 10-year Treasury fell as the new year saw a new interest in bonds.
Last Week's Headlines
• Only 74,000 new jobs were added to U.S. payrolls in December; that's the lowest number since January 2011, according to the Bureau of Labor Statistics. However, the unemployment rate fell from 7% to 6.7%, largely because of people dropping out of the work force.
• Minutes of the meeting at which the Federal Reserve's monetary policy committee decided to begin scaling back its bond purchases emphasized once again that tapering will be done gradually and will depend on economic data. Members also forecast stronger economic growth in coming years and a gradually declining unemployment rate.
• The Senate made it official that Janet Yellen will oversee the Fed's tapering efforts. Members confirmed her appointment as the first woman to chair the Federal Reserve Board. She will take over when Ben Bernanke steps down January 31.
• Record exports helped cut the U.S. trade deficit to $34.3 billion in November. According to the Bureau of Economic Analysis, that was the lowest level since September 2009.
• Orders placed with U.S. factories in November surged 1.8% for the month, putting them at their highest level since the Commerce Department began trading the figures in 1992. Inventories, which have risen 11 of the last 12 months, were partly responsible, but new orders for durable goods, particularly transportation equipment, also have risen 3 of the last 4 months and were up 3.4% in November
• Growth in the U.S. service industries slowed slightly in December as the Institute for Supply Management's gauge fell almost 1% to 53% during the month. The ISM survey also showed new orders falling to 49.4% in December, which represents actual contraction.
Eye on the Week Ahead
The Q4 2013 earnings season will get into high gear as several major financial and tech companies release reports. Data on retail sales for the holiday season will shed light on the state of consumers' wallets.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.
Key Dates/Data Releases
1/14: Retail sales, business inventories
1/15: Wholesale inflation, Empire State survey, Fed Beige Book report
1/16: Consumer inflation, international capital flows, Philly Fed survey
1/17: Housing starts, industrial production, options expiration
Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2014
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment