Displaying items by tag: banks

(New York)

The Volcker Rule was one of the more divisive aspects of the Dodd-Frank legislation. The rule virtually outlawed proprietary trading, but arguably led to less liquidity, especially in fixed income markets. Now the rule has been partially pulled back, and there are is a view to gutting it entirely, but some warn about the dangers of doing so. According to the Financial Times, there are big risks to repealing the rule as it would arguably bring back the casino mindset that dominated big bank trading before the Crisis.

FINSUM: Banks are doing very well and the trading system has operated quite smoothly since the introduction of the Volcker Rule. We see no legitimate reason to overturn it.

(New York)

Bank shares have been getting brutalized. S&P 500 financial shares are down 12% since their peak in January, and have lost ground 12 says in a row, the longest run ever. JP Morgan’s share price is now below its 200 day moving average, a key technical level. The flattening yield curve has been weighing on the shares even as investors get ready for a flurry of dividends and buybacks from the sector. So far banks have avoided seeing declines in their net interest margins, but that can only last for a time.

FINSUM: Banks trade with the direction of the economy, and a flatter yield curve is both a predictor of recession and directly bad for bank earnings.

(New York)

A big wave of buybacks is about to hit markets, and in an area where they haven’t showed up for a long time. The Federal Reserve is expected to give the green light to banks this week to rain buybacks down on investors. Furthermore, dividends are expected to grow considerably. Banks are expected to return 100% of their earnings over the next 12 months. JP Morgan is expected to hike dividends to 3%, and Citi looks poised to buy back 10% of its stock.

FINSUM: Goldman Sachs and Morgan Stanley might be the odd banks out in this forthcoming frenzy, but otherwise it should be very bullish for investors.

(New York)

That headline might have played with your mind a bit, and rightly so. Since financials generally trade alongside the direction of the economy, buying them ahead of a recession seems like folly. However, the truth is that financials tend to perform strongly for the 18 months that follow a yield curve inversion (or near one). Inversions do tend to strongly signal a forthcoming recession, but it generally takes 18.5 months from when it happens for the cycle to actually reach its peak, a period when stocks had median gains of 21%.

FINSUM: So this is a purely historical performance-based article, which is always dicey. However, it is a good point that the length of time between a yield curve inversion and a growth peak can be considerable.

(Washington)

There have been a handful of articles lately presenting how one can protect their portfolio from the current trade war (hint, stay away from food companies and autos). But there have been many fewer saying how to buy into the trade war. The answer is that investors should buy less vulnerable sectors, such as semiconductors and biotechnology, which will not be as impacted by tariffs. Banks are also likely to prosper as the economy continues its run.

FINSUM: We think the idea of biotech and banks is quite a solid one. Both seem to have little direct exposure to tariffs.