Market Drivers: Bank Earnings and Bernanke Put

Markets are forging higher again this week as traders digest a deluge of earnings releases. They have also gained more insight into what the Fed is planning on doing with regards to tapering asset purchase programs. Here are three things that have been driving the market this week.

Bank Earnings

Reports from the big banks have been a bright spot so far in Q2. Last week, JPMorgan Chase reported an earnings beat and in-line revenue as consumer deposits rose and credit card volumes increased, and Wells Fargo beat solidly on both lines. This week there was more good news for the sector with Citigroup and Goldman Sachs also releasing numbers that beat both top and bottom line estimates. Bank of America and Morgan Stanly both also bested on both earnings and revenues, keeping up the winning streak for financials.  It appears that a broad improvement in the economy and reduced loan losses have been able to offset the slowdown in mortgage lending across the group caused by rising interest rates.

Housing

There was some mixed data this week on the health of the housing market. First we had the housing market index,  which was up another 6 points this month to 57. This marks the highest level since the top seen back in 2006. On the flip side, the weekly MBA Mortgage Index declined 2.6% after last week's decline of 4.0%,  the 5th consecutive negative reading. Also, housing starts came in at 836k for June vs. the 959K expected and building permits also fell to 911k for June from 974k (May). While some of the numbers are lighter than anticipated, many point to the unseasonably wet weather across the country as having a negative impact on the data but the overall trends remain upward.

The Bernanke “Put”

Fed Chairman Ben Bernanke spent two days in front of Congress this week - The House Financial Services Committee on Wednesday, and the Senate Banking Committee on Thursday. In his comments, Bernanke said that reductions of the central bank's $85 billion-per-month bond-buying program are "by no means on a preset course" and that the Fed could leave the program intact if warranted. He also noted that there is a preponderance of evidence that QE (Quantitative Easing) has had an impact on jobs. So what is the “Bernanke Put”?  Well in options lingo, a put buyer acquires the right to sell an asset at a particular price. If the market in that asset goes lower, the holder is insulated from decline. In the case of a Bernanke Put, when the market declines, it is implied that the Fed Chairman steps in with stimulus measures to assist the economy and push markets higher. Given the positive reaction the market is having throughout his testimony, it appears that traders feel that the “Put” will be staying in place.

Weekly Bonus – Sharknado Insurance?

With the recent TV movie Sharknado dominating the Twitter universe this week, an interesting question arose. If a giant tornado filled with thousands of sharks did ever occur, would you be insured for any damage caused by the flying pelagic fish? Well Consumer Reports tackled the issue, and it appears that you may be. Mike Barry, vice president of media relations, was quoted as saying, "A tornado is a wind event, a  falling shark likely would be covered under homeowners insurance as a falling object." Also, car insurance should cover any vehicular damage, while physical damage would fall under health insurance. As far as what to do with the dead sharks following the storm? Well my guess is that there would be a run on both fillet knives as well as BBQ’s!