Bank Stocks Rise as Investors Shrug: Government Shutdown Winners
Tuesday's government shutdown did little to quell market investors' enthusiasm over improved manufacturing numbers.By Philip van Doorn, Bank Analyst
NEW YORK (TheStreet (Symbol : TST)) -- New York Community Bancorp (Symbol : NYCB) was the winner on Tuesday among stocks of large U.S. banks, with shares rising over 2.5% to close at 15.48.
The broad indices showed plenty of strength after the federal government shutdown at midnight, owing to the inability of the House of Representatives and the Senate to agree on a budget to send to President Obama. The Dow Jones Industrial Average ended with a gain of 0.4, while the S&P 500 was up 0.8% and the NASDAQ Composite rose 1.2%.
Bank stocks fared quite well, with the KBW Bank Index rising 0.7% to 62.68, with all 24 index components showing gains.
Investors shrugged off the latest game of budget brinksmanship in Washington, and discounted the possibility of a default by the government in mid-October, as the market yield on 10-year Treasury bonds was up only three basis points to 2.65%. U.S. Treasury Secretary Jack Lew in a letter to Speaker of the House John Boehner (R., Ohio) last Wednesday said the "extraordinary measures" the Treasury was taking to maintain its borrowing power will "be exhausted no later than Oct. 17," unless the $16.7 trillion federal debt limit is raised.
With the budget deadline having passed, hundreds of thousands of federal workers will be furloughed, although critical government services, including Social Security, air traffic control and the U.S. Post Office will continue to function. Still, the government shutdown can have quite an effect on the economic recovery. Deutsche Bank (Symbol : DB) market strategist David Bianco in a note to clients on Sunday wrote that "Perhaps 0.02% of GDP is threatened every day the government is shut, likely less the shorter the closure and more the longer." That is, of course, a small daily figure, but with the U.S. economy growing at an annual rate of 2.5% according to the latest Bureau of Economic Analysis estimate, the shutdown could even affect Federal Reserve stimulus policy.
The good news for investors on Tuesday was a report from the Institute for Supply Management that its Purchasing Managers Index (PMI) for September increased to 56.2% from 55.7% in August, coming in ahead of the consensus estimate of 55, among economists polled by Thomson Reuters (Symbol : TRI). The ISM said "Economic activity in the manufacturing sector expanded in September for the fourth consecutive month, and the overall economy grew for the 52nd consecutive month."
Sterne Agee Chief Economist Lindsey Piegza in a midday note Tuesday wrote that the ISM report, along with three regional reports on Monday "suggested continued strength in manufacturing activity in September." But Piegza noted that the continued strengthening of the manufacturing numbers was not enough for a significant boost to the GDP growth rate: "Manufacturing has consistently been one of the silver linings of the recovery, although as a service based economy even resurgence in manufacturing will not be enough of a catalyst to spark growth beyond 2%, but it will help to provide a floor and keep growth above 1% in the second half."
New York Community Bancorp
Shares of New York Community Bancorp have returned 25% this year. The stock has one of the highest dividend yields among publicly traded U.S. bank holding companies, with a yield of 6.46% based on a quarterly payout of 25 cents.
That payout is rather high, when considering the company's quarterly earnings over the past year have ranged from 27 cents a share to 29 cents a share. Then again, the company has maintained this dividend for 38 consecutive quarters.
Please click here for a full discussion on New York Community's market opportunity as Fannie Mae (Symbol : FNMA) and Freddie Mac (Symbol : FMCC) pull back from multifamily lending, along with analysts' diverging views on the continued viability of the dividend.
NYCB data by YCharts
Interested in more on New York Community Bancorp (Symbol : NYCB)? See TheStreet Ratings' report card for this stock.
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-- Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's (Symbol : TST) banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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