Bank stocks are in trouble. At least that’s what the most recent stock prices might be trying to warn investors about. The problem is that the sell-off in the bank stocks does not quite add up all the way with the news and the economic developments.
Long-term investors do need to beware that September and October are the two worst historical months for stock on the calendar. That means there could be even more pain in the large banking and trading operations. But what happens when that knowledge is so widespread that everyone knows it? Just a hint, they already know it.
The recent sell-off in bank stocks has been a bit uncanny. Frankly, it might make a lot of long-term investors get spooked into thinking the bank stocks have a lot more room to fall. They could, but maybe it is just the kneejerk reaction. Higher delinquencies are happening. Lower earnings are being seen. But lower interest rates are also now imminent. Higher reserve requirements could tie up even more capital. Pick your poison. It’s all up to each investor to decide at any rate.
Oggonomics is looking at the top banks in the country for the larger spots of weakness. Sectors often become oversold before any outsiders even notice they sold off. After a big one-day sell-off in shares of JPMorgan Chase & Co. (NYSE: JPM) it seems like no bank is safe. They don’t refer to JPM as the “fortress balance sheet” without reason.
JPM shares were last seen down more than 8% from its recent high despite being the safest of the large banks. Deutsche Bank recently downgraded JPMorgan Chase to Hold from Buy on September 3, but the big dip was a 7% intraday drop after management effectively lowered its net interest income guidance. This means the bank isn’t earning enough on loans and other assets versus what it pays on liabilities such as deposits.
Bank of America Corporation (NYSE: BAC) held up better than JPMorgan Chase but it was far from immune. At $38.80, BofA shares were last seen down 12.7% from the 52-week high of $44.44. It seems the largest issue here is that Warren Buffett and Berkshire Hathaway have been unloading BAC shares in larger quantities than expected.
Wells Fargo & Company (NYSE: WFC) was last seen down 14.1% from its 52-week high of $62.55. Wells Fargo remains under the tightest scrutiny of the major lenders due to its account and client woes in past years. That said, the bank has far lower trading revenue operations versus its other money-center bank rivals.
Keycorp (NYSE: KEY) at $15.96 may still only be down 7% from its 52-week high of $17.20, but the bank just announced large charges being accelerated as it sold off lower interest rate assets at a loss. This was a $25 stock before the entire rate hike campaign unfolded. Now it yields over 5.1% for its common stock holders who want high dividends. Its first round of the Bank of Nova Scotia investment has already finalized as well.
Morgan Stanley (NYSE: MS) is not a retail bank at all, but still regulated like a money-center bank. It also owns E*TRADE. Goldman Sachs decided recently to downgrade it to Neutral from Buy. At $96.75, it is down 11.3% from its 52-week high of $109.11. Morgan Stanley has a 3.6% dividend yield but it took downgrades from Wells Fargo and Oppenheimer this summer as well.
Goldman Sachs Group, inc. (NYSE: GS) cannot downgrade its own shares, but at $470.00 it is now down over 9% from its 52-week high of $517.26. It has a 2.4% dividend yield.
East West Bancorp, Inc. (EWBC) was last seen down at $78.20, down about 13% from its 52-week high of $89.75. Its dividend yield is about 2.7%.
There are many more big banks and financials that have been seeing their share of pain. If the leader stocks of a sector get into trouble, the second-tier players and third-tier players by nature have to experience weakness as well. It’s almost as if the market is trying to convince investors that a rate cutting cycle is bad for financials. It can be, but not usually — not until the end at any rate.
