Why Bank of America's Pushing the Dow Up Again


Investors' attention routinely vacillates between domestic and international events, and today's stock market action shows that dynamic clearly. Even though news from Cyprus is still at the forefront of investors' minds, attention returned to the domestic front today, as a positive report on housing starts and permits helped lift the Dow Jones Industrials 15 points by 10:55 a.m. EDT. Broader markets posted modest losses, however, reflecting investors' concerns about what the Federal Reserve may do with interest rates as it meets today and tomorrow.

Within the Dow, Bank of America is the biggest gainer, up 2%. Clearly, positive news on the housing front has a big impact on B of A and its substantial presence in the mortgage-lending industry. But the bank will also be looking closely at what happens in Cyprus as negotiations move forward that could protect small depositors from a bank deposit tax in favor of pinning larger depositors with more of the loss burden. Bank of America needs the world financial system to stay healthy for it to keep recovering.

Elsewhere, Hovnanian has jumped 4.2% on the favorable news from the housing market. Hovnanian in particular has seen impressive share-price gains over the past year as the housing recovery has strengthened, but at some point the homebuilder will need to start working its way back to profitability amid better conditions. Otherwise, investors will conclude that the stock has gotten ahead of itself, and it will give up some of its huge recent gains.

Finally, Walgreen has soared 5.9% on a positive earnings report, with generic-drug sales helping the drugstore chain beat analyst estimates. In addition, Walgreen has decided to change drug-distribution companies. Until now, the drugstore chain had used Cardinal Health, but this morning Walgreen said it would take an initial 7% stake in competing firm AmerisourceBergen , with warrants that would allow Walgreen to build its position in the company to 23% in the future. For its part, Amerisource soared 7% on the news, while Cardinal took a 7% hit.

Is B of A a buy?
Today's gains only add to Bank of America's impressive performance over the past year, with the stock having doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analyst Anand Chokkavelu, CFA, and Financials bureau chief Matt Koppenheffer lift the veil on the bank's operations, detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

The article Why Bank of America's Pushing the Dow Up Again originally appeared on Fool.com.

Fool contributor Dan Caplinger owns warrants on Bank of America. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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