Good Morning, Friends. This afternoon, we get the FOMC announcement (2 PM EDT) followd by Dr. Bernanke’s press conference (2:30 EDT). Market consensus is that the discount rate will remain at, or close to, zero, while Dr. Bernanke will make it clear that the Fed is prepared to reduce the level of quantitative easing as quickly as possible. If that proves to be the case, I would expect to see some dumping of futures and stocks in disappointment, and some steepening of the yield curve (that is, rates at the longer end will rise more, proportionately, than those with shorter maturities).
A steepening yield curve is often a positive for the trust banks that provide custodial services for asset owners and managers (the purest plays are BK, NTRS, and STT). These banks make a lot of their money by sweeping the cash from their custodial clients’ accounts (these banks all hold trillions; it adds up), paying the overnight rate, and investing farther out the yield curve. If the market as a whole sells off, and these stocks get trashed in sympathy, there may be an opportunity to get involved at a slight discount.Â
All are in uptrends on the weekly charts, with BK lagging a bit. The 63.00 area looks like a potentially favorable entry level on STT, while a move below 59.75 would be worrisome. The recent high has been 68.18. The 56.50 level looks like potential support in NTRS; if 54.75 were to break, as Todd is wont to say, “I don’t want it anymore”. BK shows support around 28.75, close to a logical stop below 28.25. None of these are really trading vehicles; they’re more in the “buy and wait for good things to happen” camp. All are likely to raise their dividends over time, and although their descents were truly frightening during the 2008/09 crisis, when the Fed is friendly, as at present, they can do very well.
Disclosure: I worked for many years at one of these shops, but I currently hold no stock.
Best of luck today!
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