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Fannie Mae Shares Surge: Breaking Down the Unexpected Stock Rally

Bryce TuoheyAvatar
Written by Bryce Tuohey Reviewed by Tim Sykes Fact-checked by Matt Monaco
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Federal National Mortgage Association’s stock surged due to a major new partnership announcement and improved lending conditions, with shares trading up by 14.0 percent on Monday.

  • Fannie Mae’s stock saw an impressive jump today. The reason? Positive changes in the preferred stock agreements by the Treasury and FHFA have signaled a likely end to conservatorship under the current administration.
  • Notable investors like Bill Ackman are highlighting Fannie Mae’s potential, predicting values around $34 per share, making it a promising investment with a reasonable upside.
  • There’s been a noted increase in consumer optimism. The Fannie Mae Home Purchase Sentiment Index rose significantly, largely due to expectations of declining mortgage rates which might further boost housing market activities.

Candlestick Chart

Live Update At 11:37:26 EST: On Monday, January 06, 2025 Federal National Mortgage Association stock [NASDAQ: FNMA] is trending up by 14.0%! Discover the key drivers behind this movement as well as our expert analysis in the detailed breakdown below.

Quick Overview of Recent Earnings

As millionaire penny stock trader and teacher Tim Sykes, says, “Preparation plus patience leads to big profits.” Many traders often rush into trades without having fully analyzed the market conditions, but those who take the time to prepare thoroughly and wait patiently for the right opportunities tend to see substantial profits. Combining detailed research with strategic patience can make a significant difference in trading outcomes.

Looking at the company’s recent performance, the numbers tell an intriguing story. Revenue stands at $30.3B, marking a robust financial health amidst uncertainties. The profit margin, which sits at a solid 56.37%, is a testament to this strength. It’s clear that Fannie Mae is maintaining a significant amount of income even after tax deductions, suggesting efficient cost management by the company.

Diving into some key financial metrics, we find that Fannie’s earnings before interest and taxes (EBIT) margin is at 8.4%. This figure points towards their operational efficiency. However, the cash flow analysis reveals a noticeable outflow in net investments, indicating robust investments in their operations or expansion plans.

Interestingly, the return on assets (ROA) paints a less promising picture, standing at -0.05%. This shows there’s room for improvement in how effectively Fannie Mae manages its asset base to generate earnings. Similarly, the ROE or return on equity metrics, showing at a lower -3.52%, also prompts a need for careful strategic planning to ensure shareholders’ value.

The balance sheet tells a more comprehensive story. The Federal National Mortgage Association, or FNMA, holds approximately $3.81B in cash and cash equivalents, providing a cushion against unforeseen liabilities or downturns. While these values speak of Fannie’s liquidity, a closer look at their liabilities indicates a hefty sum of $4.24T, hinting at significant debt levels that warrant prudent financial maneuvers moving forward.

Lastly, from the lens of cash flows, the company’s operational activities have marked significant expenditures, especially within the domains of investment and loan processes. Yet, despite these outflows, the impending guidance and market adjustments are presumed to stabilize these cash reserves in the coming quarters.

News Impact and Possible Market Outcomes

The unexpected stock price leap can primarily be attributed to the agreement between the Treasury and the Federal Housing Finance Agency. The amendment to preferred stock purchase agreements with both Fannie Mae and Freddie Mac sends a clear market signal. Traders foresee this strategic agreement as a platform for Fannie Mae’s possible release from conservatorship.

Bill Ackman, a respected name in the trading circles, has also cast a spotlight on Fannie Mae. His anticipations of a post-release valuation suggest substantial gains for traders willing to stay with the company until it fully transitions. Ackman’s projections, paired with recent policy guidelines, heighten trader expectations for growth and profitability.

Furthermore, the gradual optimism in the housing market plays a vital role. With the Home Purchase Sentiment Index reflecting bullish tendencies, Fannie Mae stands to gain as consumer confidence gradually boosts mortgage activities. This surge in market faith could catalyze Fannie’s plans, fostering greater engagement with their target markets.

In conclusion, while the present conditions showcase an upward trajectory for Fannie Mae, the company needs to tackle the challenges highlighted in its financial statements. As millionaire penny stock trader and teacher Tim Sykes, says, “Be patient, don’t force trades, and let the perfect setups come to you.” Strategic planning, leveraged on optimistic housing market trends and robust trader confidence, could potentially unlock greater value as FNMA navigates through its post-conservatorship path. The broader market outlook, coupled with dynamic policy shifts, keeps stakeholders engaged as they keenly follow Fannie Mae’s unfolding narrative.

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The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

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Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”