Banks down, techs up today equals good news for earnings season that begins next week
Today the U.S. stock market is paying attention to sectors. Technology is up. Financials are down. I think that’s good news for investors are we head into earnings season with Alcoa (AA) kicking off third quarter reports after the close on Tuesday, October 11.
Today, as of 2:30 p.m. New York time the Technology Select Sector SPDR (XLK) is up 1.9%. That performance is a major reason that the technology heavy NASDAQ Composite, up 1.69%, is out performing the Standard & Poor’s 500 and the Dow Jones Industrial Average today.
The Financial Select Sector SPDR (XLF), on the other hand, is headed in the other direction, down 0.2% today.
So why is today’s performance by these two sectors good news? Because it shows that investors might be able to push fear to the side for long enough to pay attention to earnings for the next few weeks. I expect financial stocks to deliver disappointing earnings for the third quarter and for technology stocks to surprise to the upside.
For that to turn into actual movements in stock prices, though, investors have to actually pay attention to the results.
Big banks are looking at hits to earnings coming at them from every direction. Read more
Looks like a tough earnings season ahead for the biggest U.S. banks
Investors won’t get their next dose of bank earnings reports until JPMorgan Chase releases second quarter earnings on July 14, but earnings season is already looking awfully iffy for the big U.S. trading banks.
Trading revenues are forecast to fall again for the quarter. That would mark the fifth straight quarterly year-over-year drop.
Revenue from fixed income trading at U.S. banks will fall 30% from the first quarter, according to a report from Citigroup this week. Revenue from equity trading will drop by 15%. Total trading revenue at the five biggest Wall Street banks–Goldman Sachs (GS), JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), and Morgan Stanley (MS)–may drop 4.4% in the second quarter of 2011 from the second quarter of 2011, and 17% from the first quarter of 2011, according to a report by Oppenheimer & Co. Trading accounted for almost a quarter of these bank’s revenues last year.
Analysts have been busy cutting their earnings estimates for the group–according to Bloomberg, seven analysts have cut their earnings estimates for Goldman Sachs and Morgan Stanley, for instance, in the last four weeks. So the question for earnings season will be have the stocks fallen so much—10% or more since March 31—and have estimates come down so much, that bank shares will actually rally on just the expected degree of bad news.
In an earlier quarter—say the last quarter of 2010—I would have voted for “Rally on the bad news.” But I think that’s unlikely this quarter.
Why? Read more
Saving the big banks but destroying banking
There have been no obituaries. No eulogies. No burial services.
But this quarter marks the death of traditional bank at the big money center banks.
Oh, I know we’ve seen amazing earnings reports from the likes of Goldman Sachs (GS) and JPMorgan Chase (JPM) this quarter. But their profits came from things like trading.
From everything in fact but what you and I—and certainly the preceding generation—called banking.
And it’s exactly those huge profits from everything but banking that have put the final nail in the big banks as bank.
Goldman Sachs and JPMorgan Chase and maybe Bank of America and Citigroup too will survive as financial institutions. But they won’t be banks.
That’s important because hate them though we may at the moment, banks play an important part in making our economy go. And the withdrawal of the nation’s biggest banks from traditional banking leaves a gaping hole in our economy. Perhaps other banks—smaller national banks and regional banks—can fill that hole. But it’s not certain. (I’ll be taking a look at the regional banks next week.) The absence of the big banks from traditional banking won’t bring the economy crashing down, but it will make the economy less efficient at a time when we need as much economic efficiency as we can get.
The model for what these big financial institutions will be is laid out in the most recently quarterly earnings reports from Goldman Sachs and JPMorgan Chase. Read more
Four winners in the banking sector–and my guess on when to buy them
The banking crisis is by no means over. But I think we can start putting together a list of winners.
When we will want to buy stock in these banks is another question.
What characterizes the four winners that I’m going to name in this post?
Two things.
First, they’ve come through the crisis so far in better shape than their peers. Their balance sheets are strong enough so that they can think about investing in future opportunities rather than about ways to survive.
Second, they have very attractive, already identified, opportunities ahead of them and they’ve already taken concrete steps to begin exploiting those opportunities.
I’ve got four winners in mind. I’m sure others will emerge as the world’s banks gradually work through still huge portfolios of problem loans. But right now these banks look like the best bets to exploit the crisis. Read more
23% on our bailout money? Hey, Goldman Sachs it’s not enough
Goldman Sachs (GS) is going to pay the U.S. taxpayer–hey, that’s you and me–$1.1 billion for the use of the $10 billion last October when Wall Street looked headed for a meltdown. The $1.1 billion will buy back warrants that the government took as part of the initial investment. (Taxpayers have also collected $318 million in preferred dividends.)
The $1.1 billion on our $25 billion investment comes to an annualized return of 23%. (The annualized return is higher than the simple return of roughly 11% because taxpayers got their $1.1 billion in less than a year’s time.)
Now, I can think of a lot of investments where I’d be more than happy with a 23% annualized return. My money market account. My kids’ college savings accounts. Even Jubak’s Picks.
But in this particular case? It’s just not enough. Read more
